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policies, thus satisfying the obligation of Marlton to do so.
See Rodney v. Commissioner, 53 T.C. 287, 318-319 (1969) (benefit
requirement of section 264(a)(1) is satisfied where the insurance
would ultimately satisfy an obligation of the taxpayer); Glassner
v. Commissioner, supra (same).
6. Disallowed Payments
A corporate distribution is taxed as a dividend to the
recipient shareholder to the extent of the corporation’s earnings
and profits. The portion of the distribution that is not a
dividend is a nontaxable return of capital to the extent of the
shareholder’s stock basis. The remainder of the distribution is
taxed to the shareholder as gain from the sale or exchange of
property. See sec. 301(c); Enoch v. Commissioner, 57 T.C. 781,
793 (1972); see also Commissioner v. Makransky, 321 F.2d at 601.
Petitioners do not challenge respondent’s determination that
Lakewood and Neonatology had sufficient earnings and profits to
characterize the subject distributions as dividends. We sustain
respondent’s determination that all the distributions are taxable
dividends to the recipient employee/owners. See Rule 142(a);
Welch v. Helvering, 290 U.S. at 115.
Petitioners challenge the timing of that income, however,
arguing that it is not taxable to the employee/owners in the year
determined by respondent; i.e., the year in which Neonatology and
Lakewood contributed the excess amounts to their plans or, in the
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