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petitioner’s behalf to the duties performed by an outside board
chair, and we used that model to determine reasonable
compensation for her services.
The Court of Appeals affirmed our application of the five-
factor test articulated in Elliotts, Inc. v. Commissioner, 716
F.2d 1241 (9th Cir. 1983), revg. T.C. Memo. 1980-282, to
determine reasonable compensation. E.J. Harrison & Sons, Inc. v.
Commissioner, supra at 995. Although it reversed our finding of
what was reasonable compensation for Mrs. Harrison, id. at 996,
it affirmed our determination that some portion of Mrs.
Harrison’s salary should be disallowed as unreasonable
compensation, id. at 995. With respect to Mrs. Harrison’s role
in the company, the Court of Appeals reversed our finding that
Mrs. Harrison’s role was “secondary” and equivalent to that of a
typical outside board chair. Id. at 996. It found that her role
was equal to or greater than the roles of other officers. Id.
It instructed us that the reasonableness of her compensation
should have been evaluated based on her actual role as president
of the corporation. Id. It further instructed us: “At the very
least, Mrs. Harrison’s reasonable compensation should not have
dropped below that of her sons during the audit years.” Id. The
Court of Appeals remanded the case to us for a redetermination of
reasonable compensation in a manner consistent with its
discussion.
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