- 17 -
142 (1975); Lake Petersburg Association v. Commissioner, T.C.
Memo. 1974-55, and the Supreme Court has observed that a payment
to a corporation can be a capital contribution even if some
shareholders contribute less than others or nothing at all,
Commissioner v. Fink, 483 U.S. 89 (1987); see also Sackstein v.
Commissioner, 14 T.C. 566 (1950). These cases confirm that the
language of the regulation is merely illustrative and does not
exhaust the definition of a capital contribution.
Nor does petitioner’s lack of need for the transfer fees in
order to conduct its business compel the conclusion that they are
not contributions to capital. The corporation’s need is only
another element of the illustrative language of the regulation.
A payment can be a contribution to capital where it is not needed
by the corporation for the conduct of its business. See
Cambridge Apartment Bldg. Corp. v. Commissioner, 44 B.T.A. 617
(1941) (holding shareholder payments in excess of operating
requirements to be contributions to capital when used to retire
bonded indebtedness).
The correct characterization of a shareholder payment to a
corporation depends on the capacities in which the shareholder
and the corporation deal with each other in making and receiving
the payment. Cf. sec. 1.301-1(c), Income Tax Regs. (limiting
dividend treatment to amounts paid by a corporation to a
shareholder in his capacity as such), sec. 1.311-1(e)(1), Income
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011