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With respect to the likelihood of repayment, petitioners’
argument seems to be that the accounting entry reducing the
receivable is equivocal, and that it doesn’t have the effect of a
payment or distribution because it might be reversed. Mr. Noble
testified that if respondent’s dividend determination is not
sustained by the Court, that is, if petitioner wins his case, the
receivables ledger of Stainless will be adjusted to add back the
amount by which the Receivable from Officer account was reduced
to reflect Mr. Lechner’s payment of his defense fees, which--Mr.
Noble originally advised--should be treated as corporate
expenses.
Petitioners’ argument that a constructive dividend
distribution requires corporate payment or outlay of funds also
has no merit. It ignores the circumstances in which the original
debt was created. When Mr. Lechner deposited in his personal
bank account receipts that-–the parties agree--belonged to the
corporation, he received payments of corporate funds that would
have been includable in his gross income (or at least treated as
corporate distributions to him at that earlier time) but for Mr.
Noble’s corporate journal entry creating the receivable that
treated the receipts as giving rise to what--the parties also
agree-–thereby became valid debt. Because the original payment
to Mr. Lechner was offset by the debt, there was no increase in
his net worth and no distribution supporting a dividend to him at
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Last modified: May 25, 2011