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expectation of repayment, see Magnon v. Commissioner, 73 T.C.
980, 983-994 (1980), and second, the benefit conferred by the
corporation must primarily advance the shareholder’s personal
interest as opposed to the business interest of the corporation,
see Jack’s Maintenance Contractors, Inc. v. Commissioner, 703
F.2d at 156.
Whether the corporate journal entry reducing the debt
reflected by the Receivable from Officer account resulted in a
constructive dividend to Mr. Lechner, the individual shareholder,
does not turn on whether the reduction primarily benefited the
corporation or the shareholder; this is the second prong question
addressed by Hood and Jack’s Maintenance Contractors. Stainless
has conceded that it is not entitled to the deduction, and thus
that it received no primary benefit, or at least that any benefit
that it might have received is to be disregarded for tax
purposes. Our sole question for decision is a first prong
question: Whether the action by Stainless in reducing the amount
of the debt on its accounting records conferred an economic
benefit on Mr. Lechner without expectation of repayment that
constituted or evidenced a distribution to him or for his benefit
that should be treated as a constructive dividend.
Respondent’s briefs characterize the distribution as
cancellation of indebtedness. Because the deficiency notice did
not mention cancellation of indebtedness, petitioners argue that
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