- 36 -
The test for a constructive dividend is twofold: (1) The
expense must be nondeductible to the corporation; and (2) it must
represent some economic gain, benefit, or income to the owner-
taxpayer. See Meridian Wood Prods., Inc. v. United States, 725
F.2d 1183, 1191 (9th Cir. 1984). “The crucial test * * * is
whether ‘the distribution was primarily for shareholder
benefit.’” Spera v. Commissioner, supra (quoting Loftin &
Woodard, Inc. v. United States, 577 F.2d 1206, 1215 (5th Cir.
1978)); Hood v. Commissioner, 115 T.C. at ___ (slip op. at 13).
“‘[W]hether or not a corporate distribution is a dividend or
something else, such as a gift, compensation for services,
repayment of a loan, interest on a loan, or payment for property
purchased, presents a question of fact to be determined in each
case.’” Hardin v. United States, 461 F.2d 865, 872 (5th Cir.
1972) (quoting Lengsfield v. Commissioner, 241 F.2d 508, 510 (5th
Cir. 1957), affg. T.C. Memo. 1955-257); see also Commissioner v.
Gordon, 391 U.S. 83, 88-89 (1968).
We already have determined that all of the expenses at
issue, with the exception of the golf clubs, are nondeductible to
Holland America; therefore, the first element of the test is met.
As explained below, the second element of the test, whether Mr.
and Mrs. Dobbe received an economic benefit from the expenditures
made by Holland America, is also satisfied.
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