E.J. Harrison & Sons, Inc. - Page 4

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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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