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Respondent determined that Mr. Podd, Victor, Jr., and Stephen
each received constructive dividend income of $228,678 during 1989
and $177,027 during 1990, which amounts are 1/3 of the disallowed
royalty expenses claimed by Powertex of $686,034 during 1989 and
$531,082 during 1990. Additionally, in accordance with respondent's
determination that the $250,000 management fee expenses paid by
Powertex to Plus for the 1988 through 1990 taxable years were not
ordinary and necessary business expenses, respondent determined that
such payments constituted constructive dividends. Initially,
respondent determined in the notices of deficiency that Mr. Podd
received $250,000 of constructive dividend income for 1988 and 1989,
and that the Podds and Mrs. Podd received $250,000 of constructive
dividend income for 1990. By way of amended answers, respondent
also determined that Victor, Jr. and Stephen each received $250,000
of constructive dividend income for 1988 and 1989.
14(...continued)
of dividend income petitioners address on brief concern the
constructive dividends that respondent determined were
attributable to the disallowed management fees paid by Powertex
to Plus and the disallowed royalty expenses. Accordingly, we
consider the individual petitioners to have conceded that they
received constructive dividends as determined by respondent,
except as to those amounts related to the disallowed royalty and
management fee expenses and the granting of patent rights to Mr.
Podd during 1989. See Rybak v. Commissioner, 91 T.C. 524, 566
n.19 (1988).
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