- 17 -
December 1992. Finally, respondent argues that the fact that
EMFI issued Forms 1099 to its shareholders for 1992 showing the
$739,979 distribution as a taxable dividend is evidence of EMFI's
intent to make the election.
However, both EMFI and petitioners exhibited other actions
which militate against finding that the requisite intent to make
the election existed. EMFI did not file an election to
distribute earnings and profits first as provided by section
1368(e)(3). The schedules from EMFI's Form 1120S for the fiscal
year ended October 31, 1993, do not indicate an election to first
distribute earnings and profits or that such a distribution took
place.
To the contrary, EMFI's Form 1120S for the fiscal year ended
October 31, 1993, indicates that EMFI did not intend to make such
an election. Line 20 of Schedule K and line 7 of Schedule M-2
indicates that the distributions made were "other than dividend
distributions". EMFI specifically reported $2,318,872 in
distributions other than dividends on line 20 of Schedule K and
line 7 of Schedule M-2. Line 22 of Schedule K provides a
specific place for reporting total dividends paid to shareholders
from earnings and profits. EMFI reported no amount on line 22
indicating that no dividends were distributed in the fiscal year
ended October 31, 1993. Line 20 of Schedules K-1 for the same
time period indicates that EMFI made a nondividend distribution
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