- 31 -
5. Repairs and Renovations
Petitioner argues that its accumulated earnings and profits
were justified to meet repair and renovation expenses.
Respondent, appropriately, reduced the amount of excess
accumulated earnings and profits for each year in issue, by the
actual cost of petitioner’s capital purchases. These reductions
include $74,669 primarily for the computer system purchased in
1995, $70,445 for renovations in 1996, and $34,024 for carpet and
computer equipment in 1997. No further accumulation for this
purpose has been justified by petitioner.
6. Dividend History
Petitioner argues that it has a history of consistently
distributing regular, annual dividend payments to its
stockholders. Petitioner believes that the payment of additional
dividends might have been a breach of its fiduciary duties to its
stockholders by threatening the existence of the corporation and
not providing for the reasonable needs of its business.
Respondent contends that dividends that were paid by
petitioner have been nominal in amount. Petitioner paid
dividends that amounted to $10 per share and totaled $15,665,
$15,665, and $14,285 in 1995, 1996, and 1997, respectively.
Dividends that were paid averaged 5 percent to 7 percent of
petitioner’s taxable and net book incomes, respectively.
The extent to which earnings and profits have been
distributed by the corporation may be taken into account when
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011