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do not believe that we gave sufficient consideration to the
possibility of a constructive dividend. Nor do we think the
facts in that case or the instant cases come within the terms of
the exception in Lohrke v. Commissioner, supra, to the general
rule that a taxpayer may not deduct the expenses of another. We
accordingly review these issues in the context of the instant
cases.
Our conclusion in Jack’s Maintenance Contractors, Inc. v.
Commissioner, supra, relied in substantial part upon the holding
in Lohrke v. Commissioner, supra, that a taxpayer may deduct the
payment of the expenses of another if the motive in so doing is
to protect or promote the taxpayer’s business. However, Lohrke,
as well as the cases on which it relied, involved the payment by
an individual of a corporation’s expenses. Where a corporation
pays expenses incurred by its sole or controlling shareholder, as
in the instant cases, an additional issue not considered in
Lohrke is presented; namely, whether the corporation’s payment
should be treated as, in substance, a distribution of earnings.
Moreover, arrangements between a corporation and a controlling
shareholder should be closely scrutinized. See Electric & Neon,
Inc. v. Commissioner, 56 T.C. 1324, 1339 (1971), affd. without
published opinion 496 F.2d 876 (5th Cir. 1974). Accordingly, we
agree with the Court of Appeals that consideration should have
been given to whether there was a constructive dividend in Jack’s
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