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I. Constructive Dividends
A distribution of cash or property from a foreign
corporation to a domestic shareholder with respect to the
corporation's stock generally is, to the extent of the
corporation's earnings and profits, taxable to the shareholder as
a dividend. See secs. 301(c), 316(a); sec. 1.316-1(a)(1), Income
Tax Regs. Petitioners do not dispute that SDI had earnings and
profits in excess of the amounts paid to Messrs. McCurley and
Hall.
A dividend need not be formally declared, but may be
constructive. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir.
1966), affg. T.C. Memo. 1965-84. Whether a distribution from a
corporation to a shareholder constitutes a dividend or a loan
depends on whether the corporation has conferred a benefit on the
shareholder without the expectation of repayment. See, e.g.,
Noble v. Commissioner, supra at 443; Chism's Estate v.
Commissioner, 322 F.2d 956, 959-960 (9th Cir. 1963), affg. Chism
Ice Cream Co. v. Commissioner, T.C. Memo. 1962-6. A purported
loan from a corporation to a shareholder will not be
characterized as a loan unless, at the time the funds were
transferred, the transferee had an unconditional obligation to
repay the funds, and the transferor had an unconditional
intention to secure repayment. Haag v. Commissioner, 88 T.C.
604, 615-616 (1987), affd. without published opinion 855 F.2d 855
(8th Cir. 1988). This determination is to be made based on all
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