- 12 - of the receivable as valid debt. We have accepted the parties’ stipulation to this effect. With his accountant’s advice, Mr. Lechner and Stainless treated his payments of his defense fees as payments of corporate expenses that reduced the receivable. Respondent and petitioners have agreed and made mutual concessions to the effect, first, that the corporate deduction of the defense fees is to be disallowed, contributing to a corporation income tax deficiency, and, second, that Mr. Lechner is to be allowed a Schedule C deduction in a corresponding amount, although he did not claim a deduction for the defense fees on his income tax returns. Although respondent characterizes his concession as perhaps overly generous, it is identical to the Commissioner’s concession in Hood v. Commissioner, supra, and appears to us to be appropriate. However, this concession of the unclaimed Schedule C deduction to Mr. Lechner will give him a personal tax windfall unless his individual deduction is offset by a constructive dividend in the amount of the debt reduction evidenced by the corporate accounting entry reducing the Stainless receivable from Mr. Lechner. As this Court has recited numerous times, see, e.g., Halpern v. Commissioner, T.C. Memo. 1982-31, the test for a constructive dividend has two prongs: First, the corporation must have conferred an economic benefit on the shareholder withoutPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011