Milo G. and Sarah E. Chapman, et al. - Page 14

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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.                            
                  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                                     

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