-43-
$981,202. Respondent bears the burden of proving the increased
deficiency. Rule 142(a).
Section 61 defines gross income as income from whatever
source derived, including dividends. Sec. 61(a)(7). In general,
the term "dividend" means any distribution of property made by a
corporation out of its earnings and profits of the taxable year
or out of its accumulated earnings and profits. Sec. 316(a).
The portion of a distribution of property made by a corporation
with respect to its stock which is a dividend shall be included
in gross income. Sec. 301(c)(1). The portion of the
distribution which is not a dividend shall be applied against and
reduce the shareholder's adjusted basis in his stock. Sec.
301(c)(2). That portion of the distribution which is not a
dividend, to the extent it exceeds the basis of the stock, shall
be treated as gain from the sale or exchange of property. Sec.
301(c)(3).
When a corporation confers an economic benefit upon a
shareholder, in his capacity as such, without an expectation of
reimbursement, that economic benefit becomes a constructive
dividend, taxable as such. Loftin & Woodard, Inc. v. United
States, 577 F.2d 1206, 1214 (5th Cir. 1978). Accordingly, an
expenditure made by a corporation for the personal benefit of its
shareholders may result in the receipt of constructive dividends.
Ireland v. United States, 621 F.2d 731, 735 (5th Cir. 1980);
Nicholls, North, Buse Co. v. Commissioner, 56 T.C. 1225, 1238
(1971).
Page: Previous 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 NextLast modified: May 25, 2011