- 22 -
11/30/95 11/30/96 11/30/97
Food for employees $2,692 $2,722 $2,441
Utilities--house 1,991 2,016 2,081
Total 4,683 4,738 4,522
3. Inclusion of Payments in Mr. Tschetter’s Gross Income
When a corporation makes an expenditure that primarily
benefits the corporation’s shareholders, the amount of the
expenditure may be taxed to the shareholders as a constructive
dividend. Hood v. Commissioner, 115 T.C. 172 (2000); Magnon v.
Commissioner, 73 T.C. 980, 993-994 (1980); Am. Insulation Corp.
v. Commissioner, T.C. Memo. 1985-436. We have found that
expenses for food and utilities paid by Wolf Creek Farm are Mr.
Tschetter’s expenses. Petitioners contend that the payments are
not constructive dividends because Mr. Tschetter was required to
repay any amounts that Wolf Creek Farm could not deduct for
Federal income tax purposes. Petitioners cite Cepeda v.
Commissioner, T.C. Memo. 1993-477, to support their position.
Cepeda, however, is inapposite. In that case, the taxpayers
claimed that advances made by the corporation were loans rather
than employee compensation or constructive dividends.
Petitioners do not contend that the corporate payments of Mr.
Tschetter’s expenses were loans.
For Federal income tax purposes, a transaction will be
characterized as a loan if there was “an unconditional obligation
on the part of the transferee to repay the money, and an
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