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A constructive dividend is distributed when a corporation
transfers excess value to its shareholders from corporate
earnings and profits. A corporate distribution for the
shareholder’s benefit is a constructive dividend. Sec. 316(a);
Rushing v. Commissioner, 441 F.2d 593 (5th Cir. 1971), affg. 52
T.C. 888, 893 (1969); Sachs v. Commissioner, 277 F.2d 879 (8th
Cir. 1960), affg. 32 T.C. 815 (1959); Gulf Oil Corp. v.
Commissioner, 89 T.C. at 1028; Rapid Elec. Co. v. Commissioner,
61 T.C. 232, 239 (1973). Petitioners contend that any excess
value that Burndy-US transferred to FCI in 1993 is not a
constructive dividend because it was the result of arm’s-length
negotiations between FCI and Burndy-US. We disagree. We doubt
that FCI and Burndy-US bargained at arm’s length because they
were related. See discussion pp. 57-58. We conclude that
Burndy-US paid $20,881,431 in constructive dividends to FCI in
1993.
4. Conclusion
We conclude that petitioners are liable for withholding tax
on $20,881,431 of constructive dividends that Burndy-US paid to
FCI in 1993.
To reflect concessions and the foregoing,
Decisions will be
entered under Rule 155.
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