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* * * * * * *
The legal fee was clearly incurred and paid for by
Delaware, which had purchased the property from Barber.
The suit was filed to protect Delaware’s $50,000 in-
vestment in the property.
Respondent counters:
the payment of * * * legal fees associated with Bar-
ber’s suit against his ex-wife involving their marital
residence constitute[s] constructive dividends to
Barber and petitioners have not argued that the pay-
ments constituted compensation to him, deductible by
Delaware Corporation on that basis. * * *
* * * * * * *
* * * In this case, petitioner Barber brought suit
against his ex-wife because she defrauded him out of
their marital residence and he sought rent from his ex-
wife as part of the equitable distribution of marital
property. * * * But for the divorce, Barber would not
have had to bring suit against his ex-wife. Moreover,
Barber brought suit against his ex-wife in his own name
and he, not Delaware Corporation was awarded the prop-
erty at the conclusion of the litigation. * * * What-
ever business justifications petitioners put forward
are simply not sufficient substance to alter the con-
clusion that the payment was primarily for Barber’s
benefit and a constructive dividend [is] warranted.
On the record before us, we reject petitioners’ argument
that during 1994 Delaware Corporation’s payments of the legal
fees with respect to the Mitchums Creek property do not consti-
tute constructive dividends to Mr. Barber for that year and that
Delaware Corporation is entitled to deduct such legal fees for
that year. On that record, we agree with respondent that during
1994 such payments constitute constructive dividends to Mr.
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