Midwest Stainless, Inc. and Robert A. and Mary J. Lechner - Page 14

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            respondent has raised a new issue.  This argument has no merit.                            
            Cancellation of indebtedness takes its tax significance from the                           
            context in which it occurs; cancellation of indebtedness is just                           
            a means by which a benefit can be conferred or a constructive                              
            payment made.  See OKC Corp. & Subs. v. Commissioner, 82 T.C.                              
            638, 647-648 (1984).  When a corporation with earnings and                                 
            profits cancels its shareholder’s debt to it, cancellation of                              
            indebtedness is the means by which a constructive dividend                                 
            distribution to the shareholder can be accomplished.  See Haber                            
            v. Commissioner, supra; Schneller v. Commissioner, T.C. Memo.                              
            1996-62, affd. without published opinion 129 F.3d 1265 (6th Cir.                           
            1997); Estate of Shapiro v. Commissioner, T.C. Memo. 1987-126;                             
            Shephard v. Commissioner, T.C. Memo. 1963-294, affd. per curiam                            
            340 F. 2d 27 (6th Cir. 1965).                                                              
                  The notions of constructive dividend and cancellation of                             
            indebtedness merge in their common elements:  the conferring of                            
            an economic benefit without expectation of repayment, which                                
            constitutes the first prong of a constructive dividend, with the                           
            existence of a debt and its discharge, see Waterhouse v.                                   
            Commissioner, T.C. Memo. 1994-467, which occurs when it becomes                            
            clear that the debt will not have to be repaid, see Cozzi v.                               
            Commissioner, 88 T.C. 435 (1987).  The inquiry requires a                                  
            practical assessment of the facts relating to the likelihood of                            
            repayment, see id., as they existed at the time the transaction                            

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