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Leaf v. Commissioner, supra; Stovall v. Commissioner, T.C. Memo.
1983-450.
Funds distributed by a corporation to its shareholders with
respect to their stock over which the shareholders have dominion
and control generally are taxed under the provisions of section
301(c). Where a shareholder diverts corporate funds or uses
corporate property for his personal benefit, not proximately
related to corporate business, the shareholder must include the
value of the benefit in income as a constructive dividend. E.g.,
Truesdell v. Commissioner, supra at 1294-1295; Falsetti v.
Commissioner, 85 T.C. 332, 356 (1985). However, “‘Not every
corporate expenditure incidentally conferring economic benefit on
a shareholder is a constructive dividend.’” Loftin & Woodard,
Inc. v. United States, 577 F.2d 1206, 1215 (5th Cir. 1978)
(quoting Crosby v. United States, 496 F.2d 1384, 1388 (5th Cir.
1974)); Hood v. Commissioner, 115 T.C. 172, 179-180 (2000). The
determinative factor is whether the distribution was primarily
for the shareholder’s benefit, in which case it is taxable to the
shareholder as a constructive dividend, or primarily for the
corporation’s benefit, in which case it is not a constructive
dividend. Crosby v. United States, supra at 1389; Hood v.
Commissioner, supra at 180.
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