-45-
Whether shareholder withdrawals are bona fide loans is a
question of fact, the answer to which must be based upon a
consideration and evaluation of all surrounding circumstances.
Alterman Foods, Inc. v. United States, 505 F.2d at 875.
As its sole shareholder and president, petitioner was in
complete control of the corporation. Petitioner made frequent
withdrawals of both cash and property, and although the account
balance on the records of INI steadily increased to nearly $1
million, there was no apparent ceiling. There was no repayment
schedule, no fixed date of maturity, nor any indication that at
some future point the sums advanced would be repaid. No interest
was ever actually paid, nor was any collateral provided. INI
made no systematic effort to obtain repayment, nor did petitioner
actually make payments.
Considering the circumstances surrounding the distributions
of property, we can find no support for petitioners' assertion
that the distributions were loans, not dividends. The sole
Alterman Foods factor favorable to petitioners' assertion is that
INI apparently did not have current earnings and profits in 1990
and 1991.25 The fact that a corporation has no current earnings
25
In 1989, INI reported taxable income of $23,386. In 1990
and 1991, it reported net losses. This Court is aware that
although ordinary tax-accounting principles are applicable to the
computation of earnings and profits, there are a number of
differences. See, e.g., sec. 1.312-6, Income Tax Regs. Thus,
the amount reported by a corporation as its taxable income is not
necessarily the same amount as its earnings and profits.
Nonetheless, for the years at issue in this case, the adjustments
that must be made to taxable income to determine earnings and
(continued...)
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