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Garden State Dev., Inc. v. Commissioner, 30 T.C. 135, 142 (1958);
Hulshart v. Commissioner, T.C. Memo. 1955-231.
B. Constructive Dividends
The heart of respondent’s imputation of income is that
numerous ERG expenditures and transfers constitute constructive
dividends to the Bensons. On the contrary, petitioners argue
that if the percentage of NPI’s ownership declared in the final
arbitration decision is considered, petitioners overpaid their
income tax liability.
The Commissioner is authorized and has great latitude in
reconstructing income in accordance with any reasonable method
that accurately reflects actual income. Secs. 446(b), 6001;
Petzoldt v. Commissioner, 92 T.C. 661, 687 (1989); Meneguzzo v.
Commissioner, 43 T.C. 824, 831 (1965); see Taglianetti v. United
States, 398 F.2d 558, 562 (1st Cir. 1968), affd. on other grounds
394 U.S. 316 (1969); Ramsey v. Commissioner, T.C. Memo. 1980-59;
Bolton v. Commissioner, T.C. Memo. 1975-373. The reconstruction
of a taxpayer’s income need only be reasonable in light of the
surrounding facts and circumstances. Giddio v. Commissioner, 54
T.C. 1530, 1533 (1970); Schroeder v. Commissioner, 40 T.C. 30, 33
(1963). Furthermore, it is axiomatic that “The Commissioner and
the reviewing courts are permitted to fully examine any
transaction to determine its economic and financial reality.”
Noble v. Commissioner, 368 F.2d 439, 443 (9th Cir. 1966), affg.
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