Universal Marketing, Inc. - Page 7




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               Because petitioner’s place of business is in the State of              
          Oregon, absent stipulation otherwise, an appeal of this case                
          would go to the Court of Appeals for the Ninth Circuit.  See sec.           
          7482(b)(1)(B).  The Court of Appeals uses five factors to                   
          determine the reasonableness of compensation, with no single                
          factor being determinative.  Elliotts, Inc. v. Commissioner,                
          supra.  The factors are:  (1) The employee’s role in the company;           
          (2) comparison of the compensation with that of similar                     
          companies, (3) the character and condition of the company, (4)              
          potential conflicts of interest, and (5) internal consistency in            
          compensation.  Id. at 1245-1248.  Where shareholder-officers who            
          control the corporation set their own compensation, careful                 
          scrutiny is necessary to determine whether the alleged                      
          compensation is in fact a distribution of profits and a                     
          constructive dividend.  Home Interiors & Gifts, Inc. v.                     
          Commissioner, 73 T.C. 1142, 1156 (1980).  Petitioner bears the              
          burden of proving the payments to Mr. Reeves were reasonable.11             
          See Rule 142(a).                                                            





               11 Petitioner does not argue that sec. 7491(a) operates to             
          shift the burden of proof to respondent.  Even if petitioner had            
          so argued, the burden of proof would not shift under sec. 7491(a)           
          because petitioner has not shown it maintained all required                 
          records, nor has it shown it cooperated with the reasonable                 
          requests of respondent for witnesses, documents, or meetings.               






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