Edward E. and Constance M. Thorpe - Page 15

                                       - 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  Next

Last modified: May 25, 2011