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The parties failed to stipulate to GRC's earnings and
profits during the years in issue. GRC's retained earnings for
the taxable years ended July 31, 1987 through 1994, were
$369,761, $373,543, $364,065, $319,616, $172,301, $209,367,
$251,649, and $336,591, respectively. The retained earnings do
not account for constructive dividends in the respective amounts
of $101,725 and $162,384 imputed to petitioners in their 1987 and
1988 tax years, or for petitioners' concession that they received
constructive dividends in 1989, 1990, and 1992 in the respective
amounts of $117, $1,735, and $445. Other than the constructive
dividends imputed to petitioners in 1987 and 1988 and
petitioners' concession, GRC did not pay any dividends from 1987
through 1992.
In the notice of deficiency, dated October 7, 1996,
respondent determined, among other things, that petitioners
received constructive dividends based on building additions in
the amounts of $28,058, $170,801, $133,541, and $16,009,
respectively, for 1989 through 1992. The expenditures, emanating
from the building additions, which remain in dispute for 1989
through 1992 are $27,941, $160,780, $53,001, and $15,585,
respectively.
OPINION
The primary issue we must decide is whether construction
expenditures made by GRC constituted constructive dividends to
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