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in the criminal case on the basis of petitioner’s guilty plea.
On October 27, 1997, the Court of Appeals for the Third Circuit
affirmed the judgment of conviction entered in the criminal case.
No petition for certiorari was filed with the Supreme Court.
Ms. McNamara was indicted for the filing of false joint tax
returns for the taxable years 1989 and 1990. Ms. McNamara pled
guilty to these charges.
By March 8, 1993, petitioner and respondent had signed a
Form 872-A, Special Consent to Extend the Time to Assess Tax, for
the 1988 and 1989 taxable years. By March 9, 1994, petitioner
and respondent had signed a Form 872-A for the 1990 taxable year.
OPINION
I. Understatement of Income - Constructive Dividends
During the taxable years in issue petitioner diverted
corporate funds to himself, which he failed to report as income.
Section 316(a) provides that a dividend means any distribution of
property made by a corporation to its shareholders out of its
earnings and profits. The portion of a distribution that is a
dividend is included in the gross income of the recipient and
taxable as ordinary income. Secs. 301(c), 316(a). Although the
Code does not define earnings and profits, the calculation is
based on adjustments made to the corporation’s taxable income.
DiLeo v. Commissioner, 96 T.C. 858, 888 (1991), affd. 959 F.2d 16
(2d Cir. 1992); see sec. 1.312-6(a) and (b), Income Tax Regs.
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