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Section 61(a) includes as gross income all income from
whatever source derived including, inter alia, interest and
dividends. Sec. 61(a)(4), (7). Section 316(a) defines dividends
as any distribution of property made by a corporation to its
shareholders to the extent of earnings and profits. Dividends
may be formally declared, or they may be constructive. Noble v.
Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo.
1965-84.
A. Substance-Over-Form Argument
Petitioners do not dispute respondent's calculations of the
amounts of the distributions, interest, or dividends that flow
from the plan or corporate loans. Nor do petitioners challenge
the years in which respondent seeks to include the above amounts.
Rather petitioners ask us to ignore the form of the loans and
treat the loans as having been made from the Plan directly to the
corporations. Petitioners contend that the Chapmans and the
Christies obtained the plan loans for the purpose of advancing
the proceeds to Dura-Craft and Springbrook in order for the
corporations to avoid the prohibited transaction provisions
pursuant to section 4975.6 In other words, petitioners argue
6Sec. 4975 imposes two levels of excise tax on "any
disqualified person who participates in [a] prohibited
transaction". Sec. 4975(a) and (b). Sec. 4975 imposes an excise
tax equal to 5 percent of the amount involved with the prohibited
transaction. Sec. 4975(a) provides:
SEC. 4975(a). Initial Taxes on Disqualified
(continued...)
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