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With respect to the 1990 constructive distributions totaling
$162,515 (the $160,780 of constructive distributions mentioned
above, plus $1,735 of constructive distributions conceded by
petitioners to have been received during that year), the parties
agree that none of these distributions is a dividend under
section 301(c)(1), and that $50,000 is a nontaxable return of
capital under section 301(c)(2) on account of petitioners'
$50,000 basis in the stock of the distributing corporation. The
parties disagree on the taxability of the remaining distributions
totaling $112,515. According to respondent's computation, this
amount is taxed to petitioners as a capital gain. According to
petitioners' computation, $68,115 is a capital gain and $44,400
is a return of their basis in a loan that they made to the
distributing C corporation.
We agree with respondent's computation. As stated in
Spera v. Commissioner, supra, the taxability of constructive
distributions rests on an application of section 301(c), which
provides:
SEC. 301(c). Amount Taxable.--In the case of a
distribution * * *--
(1) Amount constituting dividend.--The portion of
the distribution which is a dividend * * * shall be
included in gross income.
(2) Amount applied against basis.--That portion
of the distribution which is not a dividend shall be
applied against and reduce the adjusted basis of the
stock.
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Last modified: May 25, 2011