Stephen M. and Rebecca A. Kerns - Page 4

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               The Houston Texans football team played its first regular              
          season home game at Reliant Stadium on August 24, 2002.                     
               On April 4, 2003, after the petition was filed in this case,           
          petitioner asked the Harris County-Houston Sports Authority to              
          transfer his permanent seat license to InsurMark.                           
          C.   Petitioners’ Returns and Respondent’s Determination                    
               Petitioners filed Federal income tax returns for 1998 and              
          1999.  Respondent determined that petitioners had unreported                
          income of $8,229 for 1998 and $8,916 for 1999, in the form of               
          constructive dividends from InsurMark for its payment of their              
          personal expenses.                                                          
                                     Discussion                                       
               Petitioners contend that Insurmark’s purchase of the                   
          permanent seat license was not a constructive dividend to them in           
          1999.  They contend that the license conferred no benefit on them           
          (and thus they received no constructive dividend) in 1999 because           
          the Houston Texans football team (and Reliant Stadium) did not              
          exist in 1999.  Petitioners point out that InsurMark did not                
          deduct its $7,800 payment for the permanent seat license in 1999            
          and contend that a property right for which their corporation               
          claimed no deduction and which can be used only in the future               
          does not result in a constructive dividend to them in 1999.2                

               2 We need not decide whether the burden of proof shifts to             
          respondent under sec. 7491(a) because the facts are not in                  
          dispute and the issue is one of law.  See sec. 7491(a).                     





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