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Federal income tax return, neither of which persuade the Court in
the face of other evidence that a bona fide debt was created.
Upon examination of the 11 factors, we find that the cash
infusions from petitioners to PPP were contributions to capital,
not loans. See sec. 351; Fin Hay Realty Co. v. United States,
398 F.2d 694 (3d Cir. 1968). In particular, the
undercapitalization of the corporation, petitioner’s control over
the corporation, the fact that no dividends were declared, and
the lack of loan documents satisfy the Court that there were no
bona fide loans. Accordingly, we conclude that the payments made
by PPP to or on behalf of petitioners were not repayments of bona
fide debt.
Constructive Dividends
Having found the payments not to be loan repayments, we now
address respondent's contentions that the payments made by PPP to
or on behalf of petitioners are in the nature of constructive
dividends.
Section 61(a)(7) includes the receipt of any dividend in a
taxpayer’s gross income. Section 301(a) requires that any
distribution of “property” made by a corporation to a shareholder
“with respect to its stock” shall be subject to dividend
treatment for Federal income tax purposes. Secs. 301(c)(1), 316,
317.
The term “dividend” is defined in section 316(a) as:
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