- 68 -
performed, and there is no evidence when and how often board
meetings were held. No minutes of these alleged board meetings
were proffered as evidence. Furthermore, ERG did not issue Forms
1099, and generally, none of the purported directors reported the
income on their individual returns.60
The “Transfer of income within the family presumably
benefits both transferor and transferee.” P.R. Farms, Inc. v.
Commissioner, 820 F.2d at 1089-1089 (citing Helvering v.
Clifford, 309 U.S. 331, 335 (1940)). In P.R. Farms, Inc. v.
Commissioner, supra, the majority shareholder of a corporate
taxpayer structured his business affairs to, inter alia, shuttle
money to his children.61 The court found the business
arrangement gratuitous and held that the corporation could not
deduct the transfers as ordinary and necessary business expenses,
and the amounts transferred were constructive dividends to the
shareholder. Id. at 1088. A similar result is appropriate here.
There is no evidence what services the purported directors
performed on behalf of ERG, when the meetings were held, and
60However, Eric did report the fees received in 1994 on his
1994 return.
61In P.R. Farms, Inc. v. Commissioner, 820 F.2d 1084 (9th
Cir. 1987), affg. T.C. Memo. 1984-549, the taxpayer owned and
operated fruit orchards (orchards company). The 91-percent
shareholder, president, and director of the orchards company
incorporated a fruit packing corporation (packing company) owned
by the shareholder’s four children. The packing company was
formed to assume responsibility for packing the orchards
company’s fruit in exchange for fees.
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