- 15 - shareholders even though no funds or property are directly received by them. Two tests are normally employed to decide whether a transfer between related corporations constitutes a constructive dividend. One is an objective distribution test and the other a subjective test of primary purpose, both of which must be satisfied. See Stinnett's Pontiac Serv., Inc. v. Commissioner, supra at 641. First, there must be a distribution from the transferring corporation's earnings and profits; i.e., the transferee corporation must receive something at the expense of the transferor. This test requires property to leave the control of the transferor corporation in a way that allows a common shareholder to directly or indirectly control the property through some other instrumentality. Where property is transferred between related corporations, a common shareholder does not personally receive the property. Therefore, a distribution is thought to occur when a transferee corporation attains an increase in assets or control at the expense of a transferor corporation. The amount of such distribution is measured by the loss to the transferring corporation. See Sammons v. Commissioner, 472 F.2d 449, 451, 453 (5th Cir. 1972), affg. in part, revg. in part and remanding on other grounds T.C. Memo. 1971-145; Stinnett's Pontiac Serv., Inc. v. Commissioner,Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011