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petitioner’s paying them high compensation. See, e.g., Mad Auto
Wrecking, Inc. v. Commissioner, T.C. Memo. 1995-153 (deciding
this factor to be neutral where the officers’ qualifications and
the nature, extent, and scope of their work supported high
compensation, but where their compensation represented a
significant percent of gross income and book net income (before
deducting the officers’ compensation) and even exceeded the
amount of net income in a tax year). However, in this case we
think the percentages favor respondent because petitioner’s
shareholder-employees’ compensation was a substantial portion of
its net income and even exceeded its net income in the tax year
ended June 30, 1999.
G. External Comparison
This factor compares the shareholder-employees’ salaries to
the salaries that similar companies pay for similar employee
services. See Elliotts, Inc. v. Commissioner, 716 F.2d at 1246.
In this case, salary surveys were used by both parties’ experts.
1. Darle--Petitioner’s CEO
With respect to Darle’s compensation, Dr. Sliwoski relied on
ERI’s compensation tables for the comparison. He testified that
the proper standard industry code (SIC) for petitioner’s drywall
construction business was SIC 1742, “Plastering, Drywall, and
Insulation”. His report included a table which was titled “Table
3: SIC 1742: Chief Executive Officer Compensation: Years Ended
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