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legal services. If he was a shareholder in Niesar Pahl, then
petitioners must take account of petitioner’s pro rata share of
Niesar Pahl’s income and certain other items. Second, we must
determine whether petitioners failed to report an automobile
allowance in the amount of $6,500 received by petitioner from
Niesar Pahl in 1990. Third, we must decide whether, in failing
to report such automobile allowance, petitioners were negligent.
II. Was Petitioner a Shareholder In Niesar Pahl?
Section 1366 requires a shareholder of an S corporation to
include in his gross income his pro rata share of the
corporation’s items of income and deduction. A shareholder of an
S corporation must include those items in his gross income in his
taxable year in which the taxable year of the S corporation ends.
Sec. 1366(a).
Courts look to beneficial ownership, and not merely to legal
title, in order to determine whether a taxpayer is a shareholder
of a corporation for Federal income tax purposes: “taxation is
not so much concerned with the refinements of title as it is with
actual command over the property taxed--the actual benefit for
which the tax is paid.” Frank Lyon Co. v. United States, 435
U.S. 561, 572 (1978) (quoting Corliss v. Bowers, 281 U.S. 376,
378 (1930)). We have described in the following terms the
inquiry necessary to determine whether, by purchase, an
individual has become the owner of shares of stock of a
corporation.
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