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Transfers of property from one corporation to a related
corporation may constitute a constructive dividend to the
corporations’ common shareholder whether or not the shareholder
directly receives any property. See Sammons v. Commissioner, 472
F.2d 449, 451 (5th Cir. 1972), affg. in part, revg. in part on
another ground and remanding T.C. Memo. 1971-145; Gulf Oil Corp.
v. Commissioner, 87 T.C. 548, 565 (1986); Rapid Elec. Co. v.
Commissioner, 61 T.C. 232, 239 (1973); Shedd v. Commissioner,
T.C. Memo. 2000-292. The underlying theory is that the property
passes from the transferor corporation to the common shareholder
and then from the common shareholder to the transferee
corporation as a capital contribution. See Sammons v.
Commissioner, supra at 453; Davis v. Commissioner, T.C. Memo.
1995-283. Ultimately, for constructive dividend treatment, the
transfer must satisfy two tests: (1) The objective distribution
test, and (2) the subjective primary purpose test.
A. The Objective Distribution Test
The objective distribution test examines whether the
transfer caused property to leave the transferor corporation’s
control, permitting the common shareholder to exercise direct or
indirect control over the property through some other
instrumentality, such as the transferee corporation. Sammons v.
Commissioner, supra at 451; Gulf Oil Corp. v. Commissioner, supra
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