Daniel L. Reeves - Page 5

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          times a year.  Neither petitioner nor VVI kept a log of the use             
          of the floating structures.                                                 
               In 2002, petitioner sold his residence in Newberg, Oregon,             
          as part of a bankruptcy sale.  As part of the sale, VVI sold the            
          floating structures to petitioner’s wife’s company, Royal Sun               
          Properties, L.L.C., for $100,000 with $55,000 paid as a                     
               Respondent contends petitioner was the primary beneficiary             
          of the floating structures and VVI received only a slight benefit           
          from its use of the property.  As a result, VVI’s expenditure of            
          $185,327 to construct the floating structures constituted a                 
          constructive dividend to petitioner.                                        
               When corporate property that serves no legitimate corporate            
          purpose is used by a shareholder for personal purposes, the value           
          of that property is includable in the shareholder’s income as a             
          constructive dividend to the extent of the corporation’s earnings           
          and profits.7  Falsetti v. Commissioner, 85 T.C. 332, 356 (1985).           
          According to the Court of Appeals for the Ninth Circuit, to which           

               6 As of the date of trial, Royal Sun Properties, L.L.C.,               
          still owed VVI $45,000.                                                     
               7 Where substantial business and personal uses of the                  
          property exist, the expenses may be allocated.  Intl. Artists,              
          Ltd. v. Commissioner, 55 T.C. 94, 105 (1970).  Such allocation              
          depends upon a comparison of the personal and business                      
          considerations.  Id.                                                        

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