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to NPI. See Noble v. Commissioner, 368 F.2d at 443; Truesdell v.
Commissioner, 89 T.C. 1280 (1987). Nor is there any indication
that any of the transfers served NPI’s business purpose.
Additionally, as detailed above, ERG made significant payments to
third parties, family members, and the Bensons themselves. ERG
paid the Benson family’s personal expenses and purchased real
property for their sole use and enjoyment.
We disagree with the Bensons that a finding of constructive
dividends necessitates a declaration that NPI is a sham entity.
We do not find that NPI was a sham; however, we do find that
there is competent evidence that transfers by ERG to NPI for
purported royalties and engineering services during the years at
issue were made by Burton for his personal benefit and lacked a
business purpose. Indeed, the record discloses that NPI was a
receptacle to which ERG transferred and pooled its operational
profits. The exclusive licensing agreement and the payment of
engineering services were the articulated justification for these
payments. As the testimony and evidence demonstrates, there was
a “plan” to keep ERG profits static, shuttling amounts in excess
thereof to NPI, clothed as business payments. The profit level
of ERG was not a function of economic realities but instead of
tax planning and tinkering.
The record demonstrates that Burton controlled both sides of
the equation; there were no arm’s-length transactions between the
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