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Neither party has offered any meaningful legal analysis.
The only citation of any legal authority by either party appears
in respondent’s opening brief, which cites without elaboration
section 61 for the proposition that petitioners had unreported
income from the gas rebate payments. As discussed below, we
sustain respondent’s determination, but on different grounds.
The parties have stipulated in at least 37 separate
numbered stipulations that the gas rebates were “earned by
Towers Construction”. Two of the checks in question were made
payable to Towers Construction. We conclude that the gas rebate
payments were gross income to Towers Construction and should
pass through to the shareholders--Briggs and Mrs. Morris–-pro
rata; i.e., equally. See sec. 1366(a), (c).
Our analysis does not end there, however, for the tax
treatment of S corporation shareholders takes into consideration
not only their pro rata shares of the corporation’s items of
gross income (the pass-through amounts), but also distributions
they receive from the S corporation. An S corporation’s
distributions to its shareholders may give rise to gross income
to the shareholders in excess of the pass-through amounts,
depending upon a variety of considerations. See sec. 1368.
Here, the payments of Towers Construction’s gas rebates to
Briggs and the Morrises represent, in substance, distributions of
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