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“In determining whether or not the expenditure related to
the business of the corporation, we must ascertain whether the
payment or expenditure has independent and substantial importance
to the paying corporation.” Gow v. Commissioner, T.C. Memo.
2000-93 (citing T.J. Enters., Inc. v. Commissioner, 101 T.C. 581
(1993)), affd. 19 Fed. Appx. 90 (4th Cir. 2001). “An expenditure
generally does not have independent and substantial importance to
the distributing corporation if it is not deductible under
section 162.” Id. (citing P.R. Farms, Inc. v. Commissioner,
supra.)
Respondent determined that numerous transactions constituted
constructive dividends to the Bensons. For ease of discussion,
we shall separately detail each item and then describe the
economic benefit the Bensons received from those items.
1. ERG Transfers to NPI
Transfers made by ERG to NPI and the amounts reported for
the years 1988 through 1994 are listed as follows:
Year ERG Transfer Amount Reported Amt. Reported on Reporting
to NPI by NPI Shareholder Return Shareholder
1988 1$180,000 –- -- n/a
1989 483,098 $248,097 $165,481 The Bensons
1990 –- 193,508 129,070 The Bensons
1991 –- 1,764,049 757,025 The Bensons
1992 –- 907,443 365,754 The Bensons
1993 3,600,000 220,000 146,667 The Bensons
24,444 Eric Benson
1994 160,063 160,063 80,032 The Bensons
26,677 Eric Benson
26,677 Brad Benson
26,677 Mark Benson
Total 4,423,161 3,493,160 1,748,504
1Petitioners offered no evidence as to this transfer. Furthermore, Burton
could not recall the purpose of the transfer.
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