- 15 -
income derived from business, and dividends. When a corporation
confers an economic benefit upon a shareholder, in his capacity
as such, without an expectation of reimbursement, that economic
benefit becomes a constructive dividend, taxable as such. Loftin
& Woodard, Inc. v. United States, 577 F.2d 1206, 1214 (5th Cir.
1978); Jones v. Commissioner, T.C. Memo. 1997-400. An
expenditure made by a corporation for the personal benefit of its
shareholders may result in the receipt of constructive dividends.
Ireland v. United States, 621 F.2d 731, 735 (5th Cir. 1980).
Because we have sustained respondent's determination with
respect to the automobiles used by petitioners individually, we
further find that ETCO's payments of expenses associated with Mr.
and Mrs. Thorpe's personal use of the automobiles resulted in a
constructive dividend to Mr. and Mrs. Thorpe to the extent that
they did not reimburse ETCO for the expenses.
Office Rent Deductions
Respondent argues that expenses incurred by ETCO for office
condominium rental are not allowable as a deduction to the extent
that the rent exceeded the fair market rental value. Respondent
further determined that a portion of the perceived excess rental
payments constitutes a constructive dividend from ETCO to Mr. and
Mrs. Thorpe. Respondent contends that the rent paid by ETCO for
the office condominium was not established at arm's length
between the parties. ETCO, on the other hand, argues that the
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011