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October 21. On October 8, 1998, Mr. Wechsler lent petitioner
securities with a market value of $1,479,453. Six days later, on
October 14, 1998, petitioner returned those securities to Mr.
Wechsler. Petitioner fails to suggest an appropriate interest
rate by which to measure any implicit interest payment to Mr.
Wechsler on account of those loans. For simplicity, we shall
assume an annual interest rate of 10.4 percent (0.0285 percent a
day, based on a 365-day year),14 no compounding, the total of the
cash loans, $2,562,400, to be outstanding for 51 days, and the
securities loan, value of $1,479,453, to be outstanding for 7
days. Interest forgone on the cash loans and the security loan
would be $37,245 and $2,952, respectively, for a total of
$40,197. We shall take that amount into account in determining
reasonable compensation to Mr. Wechsler for fiscal year 1999.
V. Reasonable Compensation Determinations
A. Reasonable Compensation to Mrs. Wechsler
In the light of the preceding discussion, we conclude that
the $486,154 in total compensation petitioner paid Mrs. Wechsler
for its 1999 fiscal year is not reasonable compensation and that
petitioner overcompensated her for that year. We think, however,
that reasonable compensation to her for that year exceeds the
$150,000 respondent allowed in the notice of deficiency. Bearing
14 The interest rate of 10.4 percent is the annual rate of
return that Mr. Matthews determined would be satisfactory to an
independent equity investor.
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