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extent of the distributing corporation’s E&P;47 any excess is
nontaxable return of capital to the extent of the taxpayer’s
basis; and any remaining amount received is taxable as capital
gain from the sale or exchange of a capital asset. Sec.
301(c)(1),(2), and (3); Truesdell v. Commissioner, 89 T.C. 1280,
1295-1298 (1987); Barnard v. Commissioner, supra.
“It is well established that when controlling shareholders
divert corporate income to themselves, it is proper to treat such
diverted funds as constructive dividends for tax purposes.”
DiLeo v. Commissioner, 96 T.C. at 883. As stated more fully
above, the Commissioner’s deficiency determination is
presumptively correct, and the taxpayer bears the burden of
showing that determination is erroneous. See Rule 142(a); Zack
v. Commissioner, 692 F.2d 28 (6th Cir. 1982); DiLeo v.
Commissioner, supra at 871. Respondent’s deficiency
determination included those amounts diverted from Alviso and
GMT. Under these circumstances, petitioner bears the burden of
showing that Alviso and GMT did not have sufficient E&P to deem
the subject “distributions” to be constructive dividends.
DiZenzo v. Commissioner, 348 F.2d 122, 125-127 (2d Cir. 1965)
(burden is on taxpayers to establish corporation did not have
sufficient E&P), revg. T.C. Memo. 1964-121; Truesdell v.
47The determination of earnings and profits is governed by
sec. 316 and the regulations promulgated thereunder.
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