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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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