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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,
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