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Although Mr. Reeves did not devote 100 percent of his time
to petitioner’s business during the fiscal years at issue, as the
only executive and manager he was the driving force behind
petitioner’s success.16 Mr. Reeves was a highly motivated
employee who worked over 80 hours per week for petitioner during
the first 6 months of its FY 1995 and a substantial amount of
time during the second half of its FY 1995. Despite managing two
other companies during petitioner’s FY 1996, Mr. Reeves continued
to devote a substantial amount of time to petitioner’s
operations, which led to its further success.
B. External Comparison
This factor compares the employee’s compensation with that
paid by similar companies for similar services. Elliotts, Inc.
v. Commissioner, supra at 1246; see sec. 1.162-7(b)(3), Income
Tax Regs. Courts often use expert witness opinions to evaluate
the reasonableness of compensation. Nonetheless, this Court is
not bound by the opinion of any expert witness and may accept or
reject expert testimony in the exercise of sound judgment.
16 The record indicated the incorporation of UMI and CTC
resulted in Mr. Reeves’s performing fewer services and spending
less time operating petitioner without delineating the number of
hours per week Mr. Reeves spent operating petitioner. However,
the record did indicate that: CTC was a separate corporation for
one-half of petitioner’s FYE June 30, 1995, and UMI was a
separate corporation for 1 month of petitioner’s FYE June 30,
1995; Mr. Reeves spent over 80 hours a week operating petitioner
before CTC and UMI were spun off; and shortly after CTC and UMI
were spun off Mr. Reeves’s overall time spent working increased
significantly.
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