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was part of that payment. Broad v. Commissioner, supra, citing
Hufnagle v. Commissioner, T.C. Memo. 1986-119. We have
repeatedly held that where a corporation pays the personal
expenses of a shareholder, such payment will be treated as a
constructive dividend to the shareholder to the extent of the
corporation's earnings and profits, and to the extent that the
corporation does not expect repayment. Falsetti v. Commissioner,
85 T.C. 332 (1985); Henry Schwartz Corp. v. Commissioner, 60 T.C.
728 (1973); Challenge Manufacturing Co. v. Commissioner, 37 T.C.
650 (1962); McWilliams v. Commissioner, T.C. Memo. 1995-454;
Smith v. Commissioner, T.C. Memo. 1995-410. Generally, the case
law deals with deemed or constructive dividends. Respondent has
not determined nor argued that Peters received dividend income,
and, accordingly, we analyze only whether there has been a
constructive distribution. Neither party has sought to
characterize the payment of the legal fees as a dividend to
Peters, nor are the facts necessary for such an analysis before
us. In our case, legal fees were paid by PGWV, there was no
expectation of repayment, and the payment directly benefited
Peters. We therefore find that the payment of the legal fees
constituted a distribution to Peters; we make no decision as to
the characterization of the distribution, either as income to
Peters, a loan to him, or a return of capital; it is not
necessary to our conclusion that Peters received a constructive
distribution of the funds which in turn were used to pay the
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