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Discussion
Since the Court of Appeals affirmed our determination that a
portion of Mrs. Harrison’s salary should be disallowed as
unreasonable and instructed us that it was not unreasonable for
petitioner to have paid her at least as much as it paid her sons
during the audit years, we would not be amiss to find that she
was reasonably compensated at some level between her actual
compensation and the compensation paid her sons.
In its original brief, petitioner states its position as
follows: “It is E.J. Harrison & Sons [sic] position that the
services rendered by Myra Harrison, including her guaranty of
company notes, merited the compensation she received and was
reasonable under the independent investor analysis set forth in
Elliotts, Inc. v. Commissioner of Internal Revenue, * * *
[supra].” In Elliotts, Inc. v. Commissioner, supra at 1245, the
United States Court of Appeals for the Ninth Circuit identified
the factors that identify what is “reasonable compensation” under
section 162(a)(1). Among those factors is a comparison of the
employee’s salary with those paid by similar companies for
similar services: viz, an “External Comparison”. Id. at 1246.
On brief, under the heading “External Comparison”, petitioner
states: “The unique nature of the services provided by Myra
Harrison makes an external comparison extremely difficult. * * *
As the public face of a company dependent on public contracts,
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Last modified: May 25, 2011