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II. Did the Laniers receive a constructive dividend as a result
of the Corporation's $13,000 transfer to their son's election
campaign committee?
We now turn to whether the Laniers received a constructive
dividend in the amount of $13,000 on account of the Corporation's
transfer of that sum to Vance E. Lanier, Inc., on September 29,
1987.
Section 61(a)(7) provides that gross income includes
dividends. As mentioned previously, "dividend" is defined in
section 316(a) as a distribution of property made by a
corporation to its shareholders out of its current and/or
accumulated earnings and profits.
It is well established that expenditures made by a
corporation for the personal benefit of its shareholders may
result in the receipt by the latter of constructive dividends.
Nicholls, North, Buse Co. v. Commissioner, 56 T.C. 1225, 1238
(1971); Ashby v. Commissioner, 50 T.C. 409, 417 (1968). The
classification of an expenditure as a constructive dividend is a
question of fact. Hardin v. United States, 461 F.2d 865, 872
(5th Cir. 1972); Lengsfield v. Commissioner, 241 F.2d 508, 510
(5th Cir. 1957), affg. T.C. Memo. 1955-257. In order to be so
classified, the benefit provided by the Corporation must
primarily advance the shareholder's personal interest as opposed
to the business interests of the corporation. Ireland v. United
States, 621 F.2d 731 (5th Cir. 1980). However, the mere fact
that payments are not deductible by the corporation as a business
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