Ronald D. Ciaravella - Page 20

                                       - 20 -                                         

          all the race car expenditures as the ratio of the values of                 
          aircraft owned by Dolphin to the values of aircraft owned by all            
          the members of the controlled group.  Applying Cohan, we allow              
          Icarus deductions for advertising expenses for fiscal years ended           
          August 31, 1991, 1992, and 1993, in amounts equal to the                    
          percentages of the costs of aircraft owned by Dolphin multiplied            
          by the amount of total deductions claimed.  This amounts to the             
          following allowed deductions:                                               

                FYE 1991                 FYE 1992            FYE 1993                 
               $23,175                  $16,462             $37,280                   
          2. Includability of Dolphin's Payments in Mr. Ciaravella's Gross            
          Income as Constructive Dividends                                            
               Respondent argues that the gross receipts of Innovative                
          representing the race car expenses paid by Dolphin should be                
          removed from the Innovative Schedules C and recharacterized as              
          constructive dividends to Mr. Ciaravella.  In general, a dividend           
          is "any distribution of property made by a corporation to its               
          shareholders".  Sec. 316(a).  There is no requirement that a                
          dividend be formally declared or even intended by the                       
          corporation.  Loftin & Woodard, Inc. v. United States, 577 F.2d             
          1206, 1214 (5th Cir. 1978).                                                 
               The determination of whether a payment by a closely held               
          corporation is a constructive dividend to its sole shareholder is           
          ultimately a question of fact.  Hardin v. United States, 461 F.2d           
          865 (5th Cir. 1972).  Generally, the determination requires an              
          inquiry into whether a corporation has conferred an economic                



Page:  Previous  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  Next

Last modified: May 25, 2011