Michael L. and Susan Barnard - Page 19




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          are comfortable in treating the two as the same for purposes of             
          the instant case.  See Jones v. Commissioner, T.C. Memo. 1997-              
          400, affd. without published opinion 177 F.3d 983 (11th Cir.                
          1999).                                                                      
          Respondent asserts that petitioners’ understatements for the                
          subject years are attributable to Nanny’s to the extent of                  
          $29,213, $40,670, and $37,712, respectively.  We agree.  We                 
          disagree with respondent, however, that all of these amounts are            
          constructive dividends which are includable in petitioners’ gross           
          income as ordinary income.  As to 1987, we conclude and hold that           
          $18,659 (i.e., Nanny’s 1987 income) of the $29,213 is includable            
          in petitioners’ gross income as a dividend, that $10,000 is                 
          excludable from their gross income as a return of capital, and              
          that $554 is includable in their gross income as a long-term                
          capital gain.6  Sec. 301(c).  As to 1988, we conclude and hold              
          that $31,529 (i.e., Nanny’s 1988 income) of the $40,670 is                  
          includable in their gross income as a dividend and that the                 
          remainder of $9,141 is includable in their gross income as a                
          long-term capital gain.  Id.   As to 1989, we conclude and hold             




               6 After considering our opinion herein, we find that at the            
          end of Nanny’s 1987 taxable year:  (1) Nanny’s had a $582 deficit           
          in earnings and profit (the $18,077 less the constructive                   
          dividend of $18,659) and (2) petitioners had a zero basis in                
          their Nanny’s stock (their original $10,000 basis less the                  
          $10,000 return of capital).                                                 





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