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was created to achieve Burton’s goal of having ERG show a
consistent paper profit of approximately $75,000.50 For example,
ERG’s records show that in 1991 ERG incurred $1,539,463 for
“engineering services” provided by NPI. Assuming, as Burton
testified, that NPI charged ERG $300 per hour, Burton would have
had to spend 5,131.5 hours or 213.8 twenty-four hour periods
performing so-called engineering services.
On brief, petitioners argue that the percentage of ownership
determined in the arbitration decisions affects the issue of what
amount, if any, constitutes taxable income to the Bensons.
Petitioners direct the Court’s attention to the arbitrators’
finding that Burton owned one-third of NPI’s stock during the
years at issue. Thus, petitioners conclude, if one-third of the
distributive share rights in NPI is considered, the Bensons
overpaid their income tax liability. We disagree.
The fact that Burton did not actually own 100 percent of NPI
during the years at issue does not affect our holding that those
ERG funds transferred to NPI constituted constructive dividends
to Burton. The arbitrators found and the parties agree that
during the years at issue, Burton maintained sole operating
50On brief, petitioners argue: “The allocations of income
to NPI for the engineering services that Burton performed for ERG
respecting the Hercules contract were legitimate business
accounting decisions.” (Emphasis added.)
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