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constructive dividend, the Court of Appeals applied the test of
whether the payment primarily benefited the shareholder or the
corporation and concluded that the shareholder was the primary
beneficiary. As a second ground, the Court of Appeals held that
in any event the legal fees were the personal expenses of the
shareholder and not an ordinary and necessary business expense of
the corporation. The Court of Appeals analogized the legal
expenses to the shareholder’s medical expenses, both of which
were personal in its view, and concluded that any rule which
permitted a corporate deduction of a shareholder’s personal
expenses on the grounds that the corporation’s payment ensured
the continued availability of an indispensable employee “would be
far too broad”. Jack’s Maintenance Contractors, Inc. v.
Commissioner, 703 F.2d 154, 157 (5th Cir. 1983), revg. per curiam
T.C. Memo. 1981-349. The corporation’s deduction was therefore
disallowed.
Respondent advances two arguments in connection with the
Jack’s Maintenance Contractors, Inc. case. First, respondent
attempts to distinguish it from the instant cases by arguing that
Mr. Hood was not indispensable to HIF, unlike the shareholder in
Jack’s Maintenance Contractors, Inc. We disagree, as our
findings of fact provide. Mr. Hood was just as indispensable to
the business of HIF as Mr. Farmer was to the business of Jack’s
Maintenance Contractors, Inc. Second, respondent asks us to
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