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any distribution of property made by a corporation to
its shareholders--
(1) out of its earnings and profits
accumulated after February 28, 1913, or
(2) out of its earnings and profits of
the taxable year (computed as of the close of
the taxable year without diminution by reason
of any distributions made during the taxable
year), without regard to the amount of the
earnings and profits at the time the
distribution was made.
Except as otherwise provided in this subtitle, every
distribution is made out of earnings and profits to the
extent thereof, and from the most recently accumulated
earnings and profits. * * *
There is no requirement that the dividend be formally declared or
even intended by the corporation. Loftin & Woodward, Inc. v.
United States, 577 F.2d 1206, 1214 (5th Cir. 1978). Whether an
expenditure is a constructive dividend is a question of fact for
this Court.
It is well established that when a corporation uses its
funds to pay personal expenses of its shareholders or members of
shareholder’s families, which bear no relation to the economic
interests of the corporation, such payments constitute
constructive dividends to the shareholders to the extent of
earnings and profits. Melvin v. Commissioner, 88 T.C. 63, 79
(1987), affd. per curiam 894 F.2d 1072 (9th Cir. 1990); Falsetti
v. Commissioner, 85 T.C. at 356; Challenge Manufacturing Co. v.
Commissioner, 37 T.C. 650, 663 (1962); Am. Props., Inc. v.
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