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Maintenance Contractors, Inc.9 In addition, we believe Lohrke is
further distinguishable from the situation in the instant cases
on the basis of the showing made by the taxpayer of the reasons
for paying another’s expense. In Lohrke, the taxpayer paid the
expenses of another unable to do so; here, there has been no such
showing.
A constructive dividend arises “Where a corporation confers
an economic benefit on a shareholder without the expectation of
repayment, * * * even though neither the corporation nor the
shareholder intended a dividend.” Magnon v. Commissioner, 73
T.C. 980, 993-994 (1980). There is no question that the payment
of Mr. Hood’s legal fees was an economic benefit conferred
without the expectation of repayment, raising the question of a
constructive dividend. “However, ‘not every corporate
expenditure which incidentally confers economic benefit on a
shareholder is a constructive dividend.’ The crucial test of the
existence of a constructive dividend is whether ‘the distribution
was primarily for the benefit of the shareholder.’” Id. at 994
(quoting Loftin & Woodard, Inc. v. United States, 577 F.2d 1206,
1214 (5th Cir. 1978)). The existence of some benefit to the
corporation is not enough to permit a corporate deduction; the
9 In the instant cases, unlike Jack’s Maintenance
Contractors, Inc. v. Commissioner, supra, we have before us both
the issue of the corporation’s entitlement to a deduction and the
shareholder’s receipt of income arising from the corporation’s
payment of the legal expenses.
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