- 21 -
affg. T.C. Memo. 1996-176; Cabintaxi Corp. v. Commissioner, 63
F.3d 614 (7th Cir. 1995), affg. in part and revg. in part T.C.
Memo. 1994-316; Wilson v. Commissioner, 560 F.2d 687 (5th Cir.
1977), affg. T.C. Memo. 1975-92; Anderson v. Commissioner, supra;
Yelencsics v. Commissioner, 74 T.C. 1513 (1980); Hook v.
Commissioner, 58 T.C. 267 (1972); Beirne v. Commissioner, 52 T.C.
210 (1969); Hoffman v. Commissioner, 47 T.C. 218 (1966), affd.
per curiam 391 F.2d 930 (5th Cir. 1968). All of these situations
involve an arrangement between parties who had some agreement or
understanding regarding their relationship with each other.12
However, in none of these cases was the profit of an S
corporation not passed through to one of its shareholders because
of a poor relationship between the shareholders. We conclude
that the beneficial ownership test does not relieve petitioner
from passthrough of Green Hills profits.
Second, respondent alleges, and petitioner does not deny,
that the payment to petitioner for his Green Hills stock was
increased by approximately the amount of petitioner’s Federal
income tax on a 50-percent distributive share of income from
12 See generally Bravenec, Federal Taxation of S
Corporations and Shareholders, pp. 7-12 to 7-13 (2d ed. 1988),
showing examples of when beneficial ownership test is applied:
creditor vs. debtor; nominal shareholder vs. creditor; donor vs.
donee; estate vs. heir; entity vs. shareholder; buyer vs. seller;
subscriber, redeeming shareholder, or director vs. corporation.
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