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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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