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records presented at trial do not reflect a change in
classification resulting from the Ashland Building's use as an
operational metals refinery as of February 1998. Taken
individually, many of petitioners' explanations appear
reasonable; however, there are just too many inconsistencies, and
we do not find Mr. Spera's testimony persuasive.
Under current law, the burden is on petitioners to show that
GRC, and not petitioners, was the primary beneficiary of GRC's
expenditures. For the aforementioned reasons, petitioners have
failed to carry that burden, and we therefore conclude that the
payments for the costs associated with the construction of the
Ashland Building were made by GRC with the primary intention and
result of conferring a benefit on petitioners. Accordingly, we
find that GRC's expenditures in constructing the Ashland Building
were section 301 distributions to petitioners. These
distributions are taxable dividends to the extent of GRC's
earnings and profits. See sec. 301(c)(1). The amounts received
in excess of earnings and profits are a nontaxable return of
capital to the extent of Mr. Spera's basis in his stock, with any
excess treated as a gain from the sale or exchange of property.
See secs. 301(c)(2) and (3), and 316. The parties shall apply
this tripartite classification in arriving at their computation
under Rule 155.
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