J. Michael Shedd and Marita Shedd - Page 16




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          supra; Sparks Nugget, Inc. v. Commissioner, T.C. Memo. 1970-74,             
          affd. 458 F.2d 631 (9th Cir. 1972).                                         
               Here, J&J made a capital contribution rather than a loan to            
          TLC.  When petitioner J&J advanced the funds to TLC, Mr. Shedd,             
          as president and sole shareholder of TLC, then had indirect                 
          control over those funds.  The advance by J&J to TLC is                     
          sufficient to meet the objective test.                                      
               The second test is designed to differentiate between normal            
          business transactions of related corporations and those designed            
          primarily to benefit a common shareholder.  The primary or                  
          dominant motivation for a distribution must be examined.  See               
          Sammons v. Commissioner, supra at 451-452.  The Shedds must show            
          a legitimate corporate or business justification which is the               
          primary cause for the advance and which is sufficient to overcome           
          the conclusion that Mr. Shedd, as the shareholder, primarily                
          benefited from the advance of funds.  A legitimate corporate                
          justification is demonstrated by showing that the distribution              
          would be in the best interest of the transferring corporation.              
          If justifiable business reasons exist that account for the                  
          transfer, such reasons will suffice to override any incidental or           
          derivative benefit to a common shareholder.  See Wilkof v.                  
          Commissioner, supra.  However, where a corporation's distribution           
          serves no legitimate corporate purpose, it must be treated as a             
          constructive dividend to the benefited shareholder.  See                    






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