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$334,000, and that the remaining $666,000 of the $1 million in
issue represents the other intangibles.
Constructive Dividend
A constructive dividend occurs where a corporation has
conferred an economic benefit on the shareholder in order to
distribute available earnings and profits without expectation of
repayment. See Truesdell v. Commissioner, 89 T.C. 1280, 1295
(1987). We hold that the additional $666,000 properly allocable
to intangibles was nondeductible capital gain income to BDC that
was then distributed to Mr. Langdon as ordinary dividend
income.10
Issue 2. Constructive Dividend Received by Mr. Langdon From BDC
for Expenses Paid To Obtain the Consulting Agreement and the
Covenant Not To Compete
BDC incurred and deducted $107,815 for expenses of the sale
of its assets. In the notices of deficiency, respondent
determined that $60,581.39 of the selling expenses was allocable
to Mr. Langdon's consulting agreement and covenant and, thus,
taxable to him as a constructive dividend, not deductible by BDC.
On brief, respondent acknowledges that BDC is entitled to deduct
those selling expenses that are not allocable to Mr. Langdon's
consulting agreement and covenant, and agrees that only the pro
rata portion of the expenses allocable to the consulting
10Neither party argued that BDC did not have sufficient
earnings and profits for dividend treatment.
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