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the end of 1967, and that he suffered a loss when Singer "stole"
the Stables from him.
Generally, the income of a corporation is taxed to the
corporation. A corporation is recognized as a separate legal
entity from its stockholders for Federal income tax purposes if
either: (1) The formation of the corporation was based on a
legitimate business purpose; or (2) after formation, the
corporation actually conducted a legitimate business. National
Carbide Corp. v. Commissioner, 336 U.S. 422 (1949); Moline
Properties, Inc. v. Commissioner, 319 U.S. 436, 438-439 (1943).
Where a corporation constitutes a mere shell and was not either
formed or conducted for any nontax business purpose, its
existence will be disregarded for Federal income tax purposes
even though validly incorporated under State law. Noonan v.
Commissioner, 52 T.C. 907, 910 (1969), affd. 451 F.2d 992 (9th
Cir. 1971); Wenz v. Commissioner, T.C. Memo. 1995-277.
A dividend is a distribution of property from a corporation
to a shareholder out of the corporation's earnings and profits;
the entire amount of the dividend is includable in the
shareholder's gross income. Secs. 61(a)(7), 301, 316. Dividends
may be formally declared or constructive. Truesdell v.
Commissioner, 89 T.C. 1280, 1295 (1987). "A constructive
dividend is paid when a corporation confers an economic benefit
on a stockholder without expectation of repayment." Wortham
Machinery Co. v. United States, 521 F.2d 160, 164 (10th Cir.
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