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basis in the Castro Valley house was not reduced by the amount of
the deferred gain. Therefore, for purposes of computing the gain
on the sale of the house, petitioner's basis in the house is its
$120,666 cost. Petitioner realized $158,244 on the sale of the
house, and his gain is $37,578 ($158,244 less $120,666). Since
petitioner reported $8,451 of taxable gain on the sale of the
house, he must include the additional gain of $29,127 in income
for 1990.
2. Whether Petitioner Received a Constructive Dividend as a
Result of the Construction of the Loft
Section 61(a) includes in a taxpayer's gross income
dividends received by the taxpayer. Section 316(a) defines a
dividend as any distribution of property by a corporation to its
shareholders out of earning and profits. A taxpayer can be
charged with disguised or constructive dividend income even
though the corporation has not observed the formalities of
dividend declaration, has not made a pro rata distribution to the
entire class of stockholders, and did not record the distribution
as a dividend for bookkeeping purposes and even though neither
the corporation nor the shareholder intended a dividend. See
Crosby v. United States, 496 F.2d 1384 (5th Cir. 1974); United
States v. Smith, 418 F.2d 589, 593 (5th Cir. 1969); Paramount-
Richards Theatres, Inc. v. Commissioner, 153 F.2d 602 (5th Cir.
1946), affg. a Memorandum Opinion of this Court. Where a
corporation has incurred costs to construct, maintain, or
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