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entitled to deduct them on his personal returns as
Schedule C expenses.
Held, the reduction of the receivable on the
corporation’s books, which reduced L’s debt to the
corporation and increased his net worth in a
corresponding amount, is a constructive dividend to L.
Alan L. Billings, for petitioners.
J. Paul Knap and George W. Bezold, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
BEGHE, Judge: Respondent determined that petitioners Robert
A. and Mary J. Lechner (Lechners) and Midwest Stainless, Inc.
(Stainless), had the following Federal income tax deficiencies:
Petitioners Taxable years Deficiencies
Lechners
1994 $128
1995 24,184
Stainless
f/y/e Sept. 30, 1994 $159,362
f/y/e Sept. 30, 1995 19,956
Stainless has conceded, among other things, that respondent
properly disallowed a deduction claimed by Stainless for its
reduction of a debt owed by Mr. Lechner, its sole shareholder, in
reimbursement of his payments of legal fees incurred in defending
against his indictment for filing false individual income tax
returns; respondent has conceded that Mr. Lechner was entitled to
deduct those fees, which he did not claim on his individual
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