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A constructive dividend is paid when a corporation confers
an economic benefit on a shareholder without expectation of
repayment. Wortham Mach. Co. v. United States, 521 F.2d 160, 164
(10th Cir. 1975). Petitioners do not dispute that the payments
in question were made without expectation of repayment; they
focus instead on whether CFC conferred an economic benefit on
Mrs. Cordes as a shareholder of CFC. Because only shareholders
may receive constructive dividends for Federal income tax
purposes and because we do not believe Mrs. Cordes was a
shareholder of CFC for Federal income tax purposes, we conclude
she did not receive constructive dividends from CFC during the
years at issue.
Mrs. Cordes held legal title to at least 33.4 percent of the
outstanding shares of stock in CFC throughout the taxable years
at issue. The Cordeses’ children held legal title to the balance
of the shares. See Appendix A, Schedule of Stock Transfers, and
notes therein. Regardless of Mrs. Cordes’s percentage of record
ownership, however, “record ownership of stock, standing alone,
is not determinative of who is required to include any dividends
attributable to such stock in gross income. Rather, beneficial
ownership is the controlling factor.” Cordes v. Commissioner,
T.C. Memo. 1994-377 (citing Walker v. Commissioner, 544 F.2d 419
(9th Cir. 1976), revg. T.C. Memo. 1972-223; Ragghianti v.
Commissioner, 71 T.C. 346, 349 (1978), affd. without published
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