Midwest Stainless, Inc. and Robert A. and Mary J. Lechner - Page 12

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            of the receivable as valid debt.  We have accepted the parties’                            
            stipulation to this effect.                                                                
                  With his accountant’s advice, Mr. Lechner and Stainless                              
            treated his payments of his defense fees as payments of                                    
            corporate expenses that reduced the receivable.  Respondent and                            
            petitioners have agreed and made mutual concessions to the                                 
            effect, first, that the corporate deduction of the defense fees                            
            is to be disallowed, contributing to a corporation income tax                              
            deficiency, and, second, that Mr. Lechner is to be allowed a                               
            Schedule C deduction in a corresponding amount, although he did                            
            not claim a deduction for the defense fees on his income tax                               
            returns.  Although respondent characterizes his concession as                              
            perhaps overly generous, it is identical to the Commissioner’s                             
            concession in Hood v. Commissioner, supra, and appears to us to                            
            be appropriate.  However, this concession of the unclaimed                                 
            Schedule C deduction to Mr. Lechner will give him a personal tax                           
            windfall unless his individual deduction is offset by a                                    
            constructive dividend in the amount of the debt reduction                                  
            evidenced by the corporate accounting entry reducing the                                   
            Stainless receivable from Mr. Lechner.                                                     
                  As this Court has recited numerous times, see, e.g., Halpern                         
            v. Commissioner, T.C. Memo. 1982-31, the test for a constructive                           
            dividend has two prongs:  First, the corporation must have                                 
            conferred an economic benefit on the shareholder without                                   

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