-16-
distributions taxable as provided under section 1368, as
respondent contends.10
The burden of proof is on petitioners to show that the
amounts at issue were bona fide loans and not taxable
distributions. Rule 142(a); Welch v. Helvering, 290 U.S. 111
(1933). We also note that we have always examined transactions
between closely held corporations and their shareholders with
special scrutiny. Electric & Neon, Inc. v. Commissioner, 56 T.C.
1324, 1339 (1971), affd. without published opinion sub nom.
Jiminez v. Commissioner, 496 F.2d 876 (5th Cir. 1974).
A transfer of money is a loan for Federal income tax
purposes if, at the time the funds were transferred, the
transferee unconditionally intended to repay the money, and the
transferor unconditionally intended to secure repayment. Haag v.
Commissioner, 88 T.C. 604, 615-616 (1987), affd. without
10
Sec. 1368 provides in the case of an S corporation which has
accumulated earnings and profits that the portion of any
distribution of property which is made with respect to its stock
and which does not exceed the AAA shall not be included in gross
income to the extent that it does not exceed the basis of the
stock. Sec. 1368 (a), (b)(1), (c)(1). If the amount of the
distribution exceeds the basis of the stock, it shall be treated
as gain from the sale or exchange of property. Sec. 1368(b)(2).
The portion of the distribution that remains after depletion of
the AAA shall be treated as a dividend to the extent it does not
exceed the accumulated earnings and profits of the S corporation.
Sec. 1368(c)(2). The portion of the distribution that remains
after depletion of the AAA and depletion of the accumulated
earnings and profits shall not be included in gross income to the
extent that it does not exceed the remaining adjusted basis of
stock. If the amount of the distribution exceeds the basis of
the stock, such excess shall be treated as gain from the sale or
exchange of property. Sec. 1368(c)(3), (b).
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011