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Respondent determined deficiencies in petitioners’ 1995 and
1996 Federal income taxes of $14,789 and $12,112 respectively.
The issues presented for decision are whether corporate
distributions to Jo Marie Payton (petitioner) were loan
repayments or constructive dividends for the years in issue and
whether petitioners received imputed interest income for loans to
petitioner’s corporation.
Some of the facts have been stipulated and are so found.
The exhibits received into evidence are incorporated herein by
reference. At the time the petition in this case was filed,
petitioners resided in Los Angeles, California.
Background
Petitioner is a professional actress. She is the sole
shareholder of Payton Power Productions, Inc. (PPP), which
provides acting services. In 1995 and 1996, she served as PPP’s
president, secretary, and treasurer. Petitioner made all of
PPP’s financial decisions. At the end of the calendar year 1995
the capitalization of PPP consisted of common stock issued for
$1,000 and debt of $601,150. At the end of 1996 total
liabilities and stockholders’ equity were $649,817 of which
$1,000 was equity. “Loans from stockholders” as indicated on the
corporate returns went from $409,225 in 1995 to $530,067 in 1996.
At no time during the years in issue did either PPP or
petitioner execute notes articulating terms of a loan
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