Moreover, despite APECO's evident need for the sales
proceeds, they were distributed to Mr. Kluener8 within several
months of the sales of the horses in issue. Petitioners
acknowledge that the timing of the distribution was influenced by
tax considerations, noting that, for its taxable year ending June
30, 1990, APECO had no current or accumulated earnings and
profits, while it was expected that APECO would have earnings and
profits during the following year, which would have rendered a
distribution to Mr. Kluener taxable at least in part.
We have previously considered distributions made for the
benefit of the transferors of property as having "overriding
significance", regardless of any claimed business purpose, in
deciding whether to charge taxpayers with the gain realized on
the sale of the property.9 Hallowell v. Commissioner, 56 T.C. at
8 The fact of the distribution of the funds held in the name
of APECO Equine and the identity of the distributee afford a
further basis for distinguishing the instant case from those
relied on by petitioners. In Caruth v. United States, 688 F.
Supp. 1129, 1138-1142 (N.D. Tex. 1987), affd. on another issue
865 F.2d 644 (5th Cir. 1989), the property transferred was
retained by the corporation for its own business purposes and was
not sold or distributed. In Smalley v. Commissioner, T.C. Memo.
1973-85, certain property transferred was sold, but the sales
proceeds were, in response to pressure from outside creditors,
used to reduce the corporation's debt to third-party lenders. In
the instant case, however, even though APECO owed a substantial
amount to Fifth Third, the funds held in the name of APECO Equine
were not used to reduce APECO's debt to the bank.
9 We note that in Hallowell v. Commissioner, 56 T.C. at 609
n.5, we found the distribution for the benefit of the taxpayer of
overriding significance even where the taxpayer attempted to show
a corporate purpose for the distribution; viz, repayment of a
debt of the corporation to the taxpayer. In the instant case,
the distribution to Mr. Kluener was not made in the form of a
loan repayment, and petitioners do not attempt to argue that the
(continued...)
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