- 14 -
742 F.2d at 1317; Raymond v. United States, supra at 191; Austin
Village, Inc. v. Commissioner, supra at 745. J&J did not require
security from TLC.
Having weighed all the factors, we hold that J&J’s advances
were capital contributions and not bona fide loans. The fact that
SEKO would have been willing to lend to TLC weighed in favor of
bona fide indebtedness, but the differences in the terms and the
ability of SEKO to collect directly from the receipts of its
borrowers stripped away much of the weight.
Having decided the advances were contributions to capital,
we must now decide whether those contributions should be treated
as constructive dividends to the Shedds.
Constructive Dividend to Common Shareholder
Generally, distributions of property of a corporation to a
shareholder, with respect to the shareholder’s stock, out of its
earnings and profits are taxable to the shareholder as dividend
income to the extent of the availability of corporate earnings
and profits. See secs. 61(a)(7), 301(a), 301(c), 316(a). Here
we consider whether the advances to TLC were constructive
dividend to the Shedds, even though there was no formal dividend
declaration. See Wilkof v. Commissioner, T.C. Memo. 1978-496,
affd. 636 F.2d 1139 (6th Cir. 1981). A transfer of property
between related corporations may constitute a dividend to common
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