- 57 -
In our findings, we have made certain adjustments to reflect
what NITCO's net liquid assets would have been (i.e., its true
dividend-paying capacity), during the years in issue, if NITCO
had not made certain nonbusiness-related payments to benefit the
individual Mussman family members.11 These expenditures did not
further NITCO's business interests and were not of substantial
and direct benefit to NITCO.
Petitioners' arguments in this connection misapply and
misinterpret the pertinent case law. NITCO's remaining net
liquid assets do not reflect its true dividend-paying capacity
because of substantial nonbusiness-related expenditures it made.
Indeed, many of these expenditures may have been constructive
dividends to Mr. Mussman. These expenditures do not represent
translations of NITCO's accumulated earnings into assets related
to the conduct of NITCO's business. Cf. Smoot Sand & Gravel
11Petitioners, on the other hand, contend that for 1987,
1988, and 1989, NITCO's net liquid assets were as follows:
Year Net Liquid Assets
1987 $3,190,325
1988 4,251,470
1989 3,991,669
We note that even these respective amounts of net liquid assets
well exceed the current earnings that NITCO accumulated during
each of these years. We are further aware that to the extent we
sustain respondent's determinations with respect to the Mussmans'
having constructive dividend income for the years in issue, there
will be a resulting decrease in NITCO's accumulated taxable
income and current earnings. See secs. 535(a), (c)(1);
301(c)(1); 316(a).
Page: Previous 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 NextLast modified: May 25, 2011