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A. The Cost of the New Solarium and the Landscaping
Construction services performed by a corporation that
improve property owned by its shareholder may constitute a
constructive dividend. See Spera v. Commissioner, supra (citing
Magnon v. Commissioner, supra). To make this determination, we
must look at all the facts and circumstances surrounding the
expenditures, including the nature of the improvements and
evidence that the shareholder benefited from the corporate
expenditures. See Spera v. Commissioner, supra.12
The landscaping improvements clearly improved Mr. and Mrs.
Dobbe’s property. The new solarium also added value to the
property. Although Holland America claims it benefited from the
use of the new solarium in the year it was constructed, it has
not shown that whatever short-term incidental benefit it received
from its limited business use of the new solarium outweighed the
primarily personal benefit resulting from the addition of the
solarium to Mr. and Mrs. Dobbe’s residence. The new solarium is
12As a general rule, improvements made by a lessee (Holland
America) to a leasehold estate do not result in income to the
lessor (Mr. and Mrs. Dobbe) in the year of the improvement or
upon termination of the lease. See sec. 109; M.E. Blatt Co. v.
United States, 305 U.S. 267 (1938); Bardes v. Commissioner, 37
T.C. 1134 (1962); Spera v. Commissioner, T.C. Memo. 1998-225;
Weigel v. Commissioner, T.C. Memo. 1996-485. In this case,
however, we have determined that the improvements on the land
were made to property that was not leased to Holland America;
i.e., the landscaping services and solarium construction were
performed on land surrounding and including the Dobbe residence,
which was not included in the lease. The general rule,
therefore, is not applicable here.
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