- 17 - which petitioners claim error in connection with the net worth analysis. Respondent determined that all of the underpayments attributable to Nanny’s were includable in petitioners’ gross income as constructive dividends. We disagree. Absent a provision to the contrary, funds which a shareholder diverts from a corporation are generally includable in the shareholder’s gross income under section 61(a) to the extent that the shareholder has dominion and control over them. See also Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). One example of a contrary provision is section 301, where Congress has provided that funds (or any other property) distributed by a corporation to a shareholder over which the shareholder has dominion and control are to be taxed under the provisions of section 301(c). Under section 301(c), a constructive distribution is taxable to the shareholder as a dividend only to the extent of the corporation’s earnings and profits. Any excess is a nontaxable return of capital to the extent of the shareholder’s basis in the corporation, and any remaining amount is taxable to the shareholder as a long-term capital gain. Sec. 301(c)(2) and (3); Truesdell v. Commissioner, 89 T.C. 1280, 1295-1298 (1987). See also FDIC v. First Heights Bank, FSB, 229 F.3d 528, 540 (6th Cir. 2000), wherein the Court of Appeals for the Sixth Circuit, the court to which this case is appealable, stated:Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Next
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