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MEMORANDUM FINDINGS OF FACT AND OPINION
GOEKE, Judge: Respondent determined a deficiency of $46,666
and an accuracy-related penalty under section 66621 of $9,333.20
in petitioners Alan D. and Dianne Lenzen’s (Mr. Lenzen and Mrs.
Lenzen or collectively, the Lenzens) Federal income tax for 1999.
Respondent also determined a deficiency of $34,270 and an
accuracy-related penalty under section 6662 of $6,854 in
petitioner Royal American Foods, Inc.’s (RAF) Federal income tax
for 1999. In 1999, Mr. Lenzen held the majority of the stock of
RAF. After concessions, there are four issues remaining for
decision.
First, was RAF entitled to deduct the expenses disallowed by
respondent that remain in dispute? Because the expenses at issue
were personal expenses of the Lenzens, we hold that RAF may not
deduct them.
Second, were RAF’s payments of the Lenzens’ personal
expenses constructive dividends to the Lenzens? Because the
payments were not loan repayments or additional compensation, we
hold that they were constructive dividends.
1Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
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