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the extent of the corporation's earnings and profits. See secs.
301(a), (c)(1), and 316. The shareholder must do so even though
the corporation has not formally declared a dividend. See
United States v. Mews, 923 F.2d 67, 68 (7th Cir. 1991); Crosby v.
United States, 496 F.2d 1384, 1388 (5th Cir. 1974). The
shareholder need not receive the distribution directly. Payments
on behalf of a shareholder are treated as if paid directly to the
shareholder. See Epstein v. Commissioner, 53 T.C. 459, 474-475
(1969).
In determining whether a shareholder has received a
constructive dividend, we look to whether the payment by the
corporation benefited the shareholder personally rather than
furthered the interest of the corporation. See Hagaman v.
Commissioner, 958 F.2d 684, 690-691 (6th Cir. 1992), affg. and
remanding on other grounds T.C. Memo. 1987-549; Ireland v. United
States, 621 F.2d 731, 735 (5th Cir. 1980). Given our holding
the trusts were shams and were created by the Muhichs to
avoid taxes, we hold the $12,000 payment to the trust promoters
was solely to benefit petitioner and his family personally. We
hold petitioner must include the payment in his income as a
constructive dividend.15
15 Petitioners neither argued nor proved that Midwest did
not have sufficient earnings and profits for us to categorize the
payment as a dividend under sec. 316.
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