- 14 -
Court must weigh the benefit to the shareholder and the
corporation, and “where the business justifications put forward
are not of sufficient substance to disturb a conclusion that the
distribution was primarily for shareholder benefit,” a
constructive dividend will be found. Sammons v. Commissioner,
472 F.2d 449, 452 (5th Cir. 1972), affg. on this issue and revg.
and remanding on another issue T.C. Memo. 1971-145. The
determination of whether the shareholder or the corporation
primarily benefits is a question of fact, see id., and “The line
between primarily for shareholder benefit and primarily for
corporate benefit is often a difficult one to draw”, Crosby v.
United States, 496 F.2d 1384, 1389 (5th Cir. 1974).
As for the showing that a taxpayer must make in order to
deduct the expenses of another, we note that in Lohrke v.
Commissioner, 48 T.C. 679 (1967), the taxpayer had shown that the
expenses he paid to protect his own business were those of a
corporation unable to make payment. The taxpayer in Lohrke held
a majority interest in a corporation that had provided defective
synthetic fiber to a customer. The taxpayer individually carried
on a separate trade or business of licensing the process to
produce the synthetic fiber, from which he derived substantial
royalty income. The customer suffered losses as a result of
receiving the defective fiber, but the corporation, which was in
serious financial difficulty, was unable to compensate the
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011