§316 — Dividend defined
121 citing cases
Statute Text — 26 U.S.C. §316
For purposes of this subtitle, the term “dividend” means any distribution of property made by a corporation to its shareholders—
out of its earnings and profits accumulated after
February 28, 1913
, or
out of its earnings and profits of the taxable year (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year), without regard to the amount of the earnings and profits at the time the distribution was made.
Except as otherwise provided in this subtitle, every distribution is made out of earnings and profits to the extent thereof, and from the most recently accumulated earnings and profits. To the extent that any distribution is, under any provision of this subchapter, treated as a distribution of property to which section 301 applies, such distribution shall be treated as a distribution of property for purposes of this subsection.
The definition in subsection (a) shall not apply to the term “dividend” as used in subchapter L in any case where the reference is to dividends of insurance companies paid to policyholders as such.
In the case of a corporation which—
under the law applicable to the taxable year in which the distribution is made, is a personal holding company (as defined in section 542), or
for the taxable year in respect of which the distribution is made under section 563(b) (relating to dividends paid after the close of the taxable year), or section 547 (relating to deficiency dividends), or the corresponding provisions of prior law, is a personal holding company under the law applicable to such taxable year,
the term “dividend” also means any distribution of property (whether or not a dividend as defined in subsection (a)) made by the corporation to its shareholders, to the extent of its undistributed personal holding company income (determined under section 545 without regard to distributions under this paragraph) for such year.
For purposes of subparagraph (A), the term “distribution of property” includes a distribution in complete liquidation occurring within 24 months after the adoption of a plan of liquidation, but—
only to the extent of the amounts distributed to distributees other than corporate shareholders, and
only to the extent that the corporation designates such amounts as a dividend distribution and duly notifies such distributees of such designation, under regulations prescribed by the Secretary, but
not in excess of the sum of such distributees’ allocable share of the undistributed personal holding company income for such year, computed without regard to this subparagraph or section 562(b).
The term “dividend” also means any distribution of property (whether or not a dividend as defined in subsection (a)) which constitutes a “deficiency dividend” as defined in section 860(f).
In the case of a regulated investment company that has a taxable year other than a calendar year, if the distributions by the company with respect to any class of stock of such company for the taxable year exceed the company’s current and accumulated earnings and profits which may be used for the payment of dividends on such class of stock, the company’s current earnings and profits shall, for purposes of subsection (a), be allocated first to distributions with respect to such class of stock made during the portion of the taxable year which precedes January 1.
Treasury Regulations
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Treas. Reg. §1.316-1Dividends
(a)(1) The term dividend for the purpose of subtitle A of the Code (except when used in subchapter L, chapter 1 of the Code, in any case where the reference is to dividends and similar distributions of insurance companies paid to policyholders as such) comprises any distribution of property as defined in section 317 in the ordinary course of business, even though extraordinary in amount, made by a domestic or foreign corporation to its shareholders out of either—
(i) Earnings and profits accumulated since February 28, 1913, or
(ii) Earnings and profits of the taxable year computed without regard to the amount of the earnings and profits (whether of such year or accumulated since February 28, 1913) at the time the distribution was made.
The earnings and profits of the taxable year shall be computed as of the close of such year, without diminution by reason of any distributions made during the taxable year. For the purpose of determining whether a distribution constitutes a dividend, it is unnecessary to ascertain the amount of the earnings and profits accumulated since February 28, 1913, if the earnings and profits of the taxable year are equal to or in excess of the total amount of the distributions made within such year.
(2) Where a corporation distributes property to its shareholders on or after June 22, 1954, the amount of the distribution which is a dividend to them may not exceed the earnings and profits of the distributing corporation.
(3) The rule of (2) above may be illustrated by the following example:
(b)(1) In the case of a corporation which, under the law applicable to the taxable year in which a distribution is made, is a personal holding company or which, for the taxable year in respect of which a distribution is made under section 563 (relating to dividends paid within 2
1/2 months after the close of the taxable year), or section 547 (relating to deficiency dividends), or corresponding provisions of a prior income tax law, was under the applicable law a personal holding company, the term dividend, in addition to the meaning set forth in the first sentence of section 316, also means a distribution to its shareholders as follows: A distribution within a taxable year of the corporation, or of a shareholder, is a dividend to the extent of the corporation's undistributed personal holding company income (determined under section 545 without regard to distributions under section 316(b)(2)) for the taxable year in which, or, in the case of a distribution under section 563 or section 547, the taxable year in respect of which, the distribution was made. This subparagraph does not apply to distributions in partial or complete liquidation of a personal holding company. In the case of certain complete liquidations of a personal holding company see subparagraph (2) of this paragraph.
(2) In the case of a corporation which, under the law applicable to the taxable year in which a distribution is made, is a personal holding company or which, for the taxable year in respect of which a distribution is made under section 563, or section 547, or corresponding provisions of a prior income tax law, was under the applicable law a personal holding company, the term dividend, in addition to the meaning set forth in the first sentence of section 316, also means, in the case of a complete liquidation occurring within 24 months after the adoption of a plan of liquidation, a distribution of property to its shareholders within such period, but—
(i) Only to the extent of the amounts distributed to distributees other than corporate shareholders, and
(ii) Only to the extent that the corporation designates such amounts as a dividend distribution and duly notifies such distributees in accordance with subparagraph (5) of this paragraph, but
(iii) Not in excess of the sum of such distributees' allocable share of the undistributed personal holding company income for such year (determined under section 545 without regard to sections 562(b) and 316(b)(2)(B)).
Section 316(b)(2)(B) and this subparagraph apply only to distributions made in any taxable year of the distributing corporation beginning after December 31, 1963. The amount designated with respect to a noncorporate distributee may not exceed the amount actually distributed to such distributee. For purposes of determining a noncorporate distributee's gain or loss on liquidation, amounts distributed in complete liquidation to such distributee during a taxable year are reduced by the amounts designated as a dividend with respect to such distributee for such year. For purposes of section 333(e)(1), a shareholder's ratable share of the earnings and profits of the corporation accumulated after February 28, 1913, shall be reduced by the amounts designated as a dividend with respect to such shareholder (even though such designated amounts are distributed during the 1-month period referred to in section 333).
(3) For purposes of subparagraph (2)(iii) of this paragraph—
(i) Except as provided in subdivision (ii) of this subparagraph, the sum of the noncorporate distributees' allocable share of undistributed personal holding company income for the taxable year in which, or in respect of which, the distribution was made (computed without regard to sections 562(b) and 316(b)(2)(B)) shall be determined by multiplying such undistributed personal holding company income by the ratio which the aggregate value of the stock held by all noncorporate shareholders immediately before the record date of the last liquidating distribution in such year bears to the total value of all stock outstanding on such date. For rules applicable in a case where the distributing corporation has more than one class of stock, see subdivision (iii) of this subparagraph.
(ii) If more than one liquidating distribution was made during the year, and if, after the record date of the first distribution but before the record date of the last distribution, there was a change in the relative shareholdings as between noncorporate shareholders and corporate shareholders, then the sum of the noncorporate distributees' allocable share of undistributed personal holding company income for the taxable year in which, or in respect of which, the distributions were made (computed without regard to sections 562(b) and 316(b)(2)(B)) shall be determined as follows:
(a) First, allocate the corporation's undistributed personal holding company income among the distributions made during the taxable year by reference to the ratio which the aggregate amount of each distribution bears to the total amount of all distributions during such year;
(b) Second, determine the noncorporate distributees' allocable share of the corporation's undistributed personal holding company income for each distribution by multiplying the amount determined under (a) of this subdivision (ii) for each distribution by the ratio which the aggregate value of the stock held by all noncorporate shareholders immediately before the record date of such distribution bears to the total value of all stock outstanding on such date; and
(c) Last, determine the sum of the noncorporate distributees' allocable share of the corporation's undistributed personal holding company income for all such distributions.
For rules applicable in a case where the distributing corporation has more than one class of stock, see subdivision (iii) of this subparagraph.
(iii) Where the distributing corporation has more than one class of stock—
(a) The undistributed personal holding company income for the taxable year in which, or in respect of which the distribution was made shall be treated as a fund from which dividends may properly be paid and shall be allocated between or among the classes of stock in a manner consistent with the dividend rights of such classes under local law and the pertinent governing instruments, such as, for example, the distributing corporation's articles or certificate of incorporation and bylaws;
(b) The noncorporate distributees' allocable share of the undistributed personal holding company income for each class of stock shall be determined separately in accordance with the rules set forth in subdivisions (i) or (ii) of this subparagraph, as if each class of stock were the only class of stock outstanding; and
(c) The sum of the noncorporate distributees' allocable share of the undistributed personal holding company income for the taxable year in which, or in respect of which, the distribution was made shall be the sum of the noncorporate distributees' allocable share of the undistributed personal holding company income for all classes of stock.
(iv) For purposes of this subparagraph, in any case where the record date of a liquidating distribution cannot be ascertained, the record date of the distribution shall be the date on which the liquidating distribution was actually made.
(4) The amount designated as a dividend to a noncorporate distributee for any taxable year of the distributing corporation may not exceed an amount equal to the sum of the noncorporate distributees' allocable share of undistributed personal holding company income (as determined under subparagraph (3) of this paragraph) for such year multiplied by the ratio which the aggregate value of the stock held by such distributee immediately before the record date of the liquidating distribution or, if the record date cannot be ascertained, immediately before the date on which the liquidating distribution was actually made, bears to the aggregate value of stock outstanding held by all noncorporate distributees on such date. In any case where more than one liquidating distribution is made during the taxable year, the aggregate amount which may be designated as a dividend to a noncorporate distributee for such year may not exceed the aggregate of the amounts determined by applying the principle of the preceding sentence to the amounts determined under subparagraphs (3)(ii)(a) and (b) of this paragraph for each distribution. Where the distributing corporation has more than one class of stock, the limitation on the amount which may be designated as a dividend to a noncorporate distributee for any taxable year shall be determined by applying the rules of this subparagraph separately with respect to the noncorporate distributees' allocable share of the undistributed personal holding company income for each class of stock (as determined under subparagraphs (3)(iii)(a) and (b) of this paragraph).
(5) A corporation may designate as a dividend to a shareholder all or part of a distribution in complete liquidation described in section 316(b)(2)(B) of this paragraph by:
(i) Claiming a dividends paid deduction for such amount in its return for the year in which, or in respect of which, the distribution is made,
(ii) Including such amount as a dividend in Form 1099 filed in respect of such shareholder pursuant to section 6042(a) and the regulations thereunder and in a written statement of dividend payments furnished to such shareholder pursuant to section 6042(c) and § 1.6042-4, and
(iii) Indicating on the written statement of dividend payments furnished to such shareholder the amount included in such statement which is designated as a dividend under section 316(b)(2)(B) and this paragraph.
If a corporation complies with the procedure prescribed in the preceding sentence, it satisfies both the designation and notification requirements of section 316(b)(2)(B)(ii) and paragraph (b)(2)(ii) of this section. An amount designated as a dividend shall not be included as a distribution in liquidation on Form 1099L filed pursuant to § 1.6043-2 (relating to returns of information respecting distributions in liquidation). If a corporation designates a dividend in accordance with this subparagraph, it shall attach to the return in which it claims a deduction for such designated dividend a schedule indicating all facts necessary to determine the sum of the noncorporate distributees' allocable share of undistributed personal holding company income (determined in accordance with subparagraph (3) of this paragraph) for the year in which, or in respect of which, the distribution is made.
(c) Except as provided in section 316(b)(1), the term dividend includes any distribution of property to shareholders to the extent made out of accumulated or current earnings and profits. See, however, section 331 (relating to distributions in complete or partial liquidation), section 301(e) (relating to distributions by personal service corporations), section 302(b) (relating to redemptions treated as amounts received from the sale or exchange of stock), and section 303 (relating to distributions in redemption of stock to pay death taxes). See also section 305(b) for certain distributions of stock or stock rights treated as distributions of property.
(d) In the case of a corporation which, under the law applicable to the taxable year in respect of which a distribution is made under section 860 (relating to deficiency dividends), was a regulated investment company (within the meaning of section 851), or a real estate investment trust (within the meaning of section 856), the term dividend, in addition to the meaning set forth in paragraphs (a) and (b) of section 316, means a distribution of property to its shareholders which constitutes a “deficiency dividend” as defined in section 860(f).
(e) The application of section 316 may be illustrated by the following examples:
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Treas. Reg. §1.316-1(a)§1.316-1(a)
The undistributed personal holding company income for the taxable year in which, or in respect of which the distribution was made shall be treated as a fund from which dividends may properly be paid and shall be allocated between or among the classes of stock in a manner consistent with the dividend rights of such classes under local law and the pertinent governing instruments, such as, for example, the distributing corporation's articles or certificate of incorporation and bylaws;
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Treas. Reg. §1.316-1(b)§1.316-1(b)
The noncorporate distributees' allocable share of the undistributed personal holding company income for each class of stock shall be determined separately in accordance with the rules set forth in subdivisions (i) or (ii) of this subparagraph, as if each class of stock were the only class of stock outstanding; and
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Treas. Reg. §1.316-1(c)Except as provided in section 316(b)(1), the term dividend includes any distribution of property to shareholders to the extent made out of accumulated or current earnings and profits.
Except as provided in section 316(b)(1), the term dividend includes any distribution of property to shareholders to the extent made out of accumulated or current earnings and profits. See, however, section 331 (relating to distributions in complete or partial liquidation), section 301(e) (relating to distributions by personal service corporations), section 302(b) (relating to redemptions treated as amounts received from the sale or exchange of stock), and section 303 (relating to distributions in redemption of stock to pay death taxes). See also section 305(b) for certain distributions of stock or stock rights treated as distributions of property.
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Treas. Reg. §1.316-1(d)In the case of a corporation which, under the law applicable to the taxable year in respect of which a distribution is made under section 860 (relating to deficiency dividends), was a regulated investment company (within the meaning of section 851), or a real estate investment trust (within the meaning of section 856), the term dividend, in addition to the meaning set forth in paragraphs (a) and (b) of section 316, means a distribution of property to its shareholders which constitutes a “deficie
In the case of a corporation which, under the law applicable to the taxable year in respect of which a distribution is made under section 860 (relating to deficiency dividends), was a regulated investment company (within the meaning of section 851), or a real estate investment trust (within the meaning of section 856), the term dividend, in addition to the meaning set forth in paragraphs (a) and (b) of section 316, means a distribution of property to its shareholders which constitutes a “deficiency dividend” as defined in section 860(f).
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Treas. Reg. §1.316-1(e)§1.316-1(e)
The application of section 316 may be illustrated by the following examples:
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Treas. Reg. §1.316-1(i)§1.316-1(i)
Claiming a dividends paid deduction for such amount in its return for the year in which, or in respect of which, the distribution is made,
(ii) Including such amount as a dividend in Form 1099 filed in respect of such shareholder pursuant to section 6042(a) and the regulations thereunder and in a written statement of dividend payments furnished to such shareholder pursuant to section 6042(c) and § 1.6042-4, and
(iii) Indicating on the written statement of dividend payments furnished to such shareholder the amount included in such statement which is designated as a dividend under section 316(b)(2)(B) and this paragraph.
If a corporation complies with the procedure prescribed in the preceding sentence, it satisfies both the designation and notification requirements of section 316(b)(2)(B)(ii) and paragraph (b)(2)(ii) of this section. An amount designated as a dividend shall not be included as a distribution in liquidation on Form 1099L filed pursuant to § 1.6043-2 (relating to returns of information respecting distributions in liquidation). If a corporation designates a dividend in accordance with this subparagraph, it shall attach to the return in which it claims a deduction for such designated dividend a schedule indicating all facts necessary to determine the sum of the noncorporate distributees' allocable share of undistributed personal holding company income (determined in accordance with subparagraph (3) of this paragraph) for the year in which, or in respect of which, the distribution is made.
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Treas. Reg. §1.316-2Sources of distribution in general
(a) For the purpose of income taxation every distribution made by a corporation is made out of earnings and profits to the extent thereof and from the most recently accumulated earnings and profits. In determining the source of a distribution, consideration should be given first, to the earnings and profits of the taxable year; second, to the earnings and profits accumulated since February 28, 1913, only in the case where, and to the extent that, the distributions made during the taxable year are not regarded as out of the earnings and profits of that year; third, to the earnings and profits accumulated before March 1, 1913, only after all the earnings and profits of the taxable year and all the earnings and profits accumulated since February 28, 1913, have been distributed; and, fourth, to sources other than earnings and profits only after the earnings and profits have been distributed.
(b) If the earnings and profits of the taxable year (computed as of the close of the year without diminution by reason of any distributions made during the year and without regard to the amount of earnings and profits at the time of the distribution) are sufficient in amount to cover all the distributions made during that year, then each distribution is a taxable dividend. See § 1.316-1. If the distributions made during the taxable year exceed the earnings and profits of such year, then that proportion of each distribution which the total of the earnings and profits of the year bears to the total distributions made during the year shall be regarded as out of the earnings and profits of that year. The portion of each such distribution which is not regarded as out of earnings and profits of the taxable year shall be considered a taxable dividend to the extent of the earnings and profits accumulated since February 28, 1913, and available on the date of the distribution. In any case in which it is necessary to determine the amount of earnings and profits accumulated since February 28, 1913, and the actual earnings and profits to the date of a distribution within any taxable year (whether beginning before January 1, 1936, or, in the case of an operating deficit, on or after that date) cannot be shown, the earnings and profits for the year (or accounting period, if less than a year) in which the distribution was made shall be prorated to the date of the distribution not counting the date on which the distribution was made.
(c) The provisions of the section may be illustrated by the following example:
(d) Any distribution by a corporation out of earnings and profits accumulated before March 1, 1913, or out of increase in value of property accrued before March 1, 1913 (whether or not realized by sale or other disposition, and, if realized, whether before, on, or after March 1, 1913), is not a dividend within the meaning of subtitle A of the Code.
(e) A reserve set up out of gross income by a corporation and maintained for the purpose of making good any loss of capital assets on account of depletion or depreciation is not a part of surplus out of which ordinary dividends may be paid. A distribution made from a depletion or a depreciation reserve based upon the cost or other basis of the property will not be considered as having been paid out of earnings and profits, but the amount thereof shall be applied against and reduce the cost or other basis of the stock upon which declared. If such a distribution is in excess of the basis, the excess shall be taxed as a gain from the sale or other disposition of property as provided in section 301(c)(3)(A). A distribution from a depletion reserve based upon discovery value to the extent that such reserve represents the excess of the discovery value over the cost or other basis for determining gain or loss, is, when received by the shareholders, taxable as an ordinary dividend. The amount by which a corporation's percentage depletion allowance for any year exceeds depletion sustained on cost or other basis, that is, determined without regard to discovery or percentage depletion allowances for the year of distribution or prior years, constitutes a part of the corporation's “earnings and profits accumulated after February 28, 1913,” within the meaning of section 316, and, upon distribution to shareholders, is taxable to them as a dividend. A distribution made from that portion of a depletion reserve based upon a valuation as of March 1, 1913, which is in excess of the depletion reserve based upon cost, will not be considered as having been paid out of earnings and profits, but the amount of the distribution shall be applied against and reduce the cost or other basis of the stock upon which declared. See section 301. No distribution, however, can be made from such a reserve until all the earnings and profits of the corporation have first been distributed.
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Treas. Reg. §1.316-2(a)For the purpose of income taxation every distribution made by a corporation is made out of earnings and profits to the extent thereof and from the most recently accumulated earnings and profits.
For the purpose of income taxation every distribution made by a corporation is made out of earnings and profits to the extent thereof and from the most recently accumulated earnings and profits. In determining the source of a distribution, consideration should be given first, to the earnings and profits of the taxable year; second, to the earnings and profits accumulated since February 28, 1913, only in the case where, and to the extent that, the distributions made during the taxable year are not regarded as out of the earnings and profits of that year; third, to the earnings and profits accumulated before March 1, 1913, only after all the earnings and profits of the taxable year and all the earnings and profits accumulated since February 28, 1913, have been distributed; and, fourth, to sources other than earnings and profits only after the earnings and profits have been distributed.
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Treas. Reg. §1.316-2(b)If the earnings and profits of the taxable year (computed as of the close of the year without diminution by reason of any distributions made during the year and without regard to the amount of earnings and profits at the time of the distribution) are sufficient in amount to cover all the distributions made during that year, then each distribution is a taxable dividend.
If the earnings and profits of the taxable year (computed as of the close of the year without diminution by reason of any distributions made during the year and without regard to the amount of earnings and profits at the time of the distribution) are sufficient in amount to cover all the distributions made during that year, then each distribution is a taxable dividend. See § 1.316-1. If the distributions made during the taxable year exceed the earnings and profits of such year, then that proportion of each distribution which the total of the earnings and profits of the year bears to the total distributions made during the year shall be regarded as out of the earnings and profits of that year. The portion of each such distribution which is not regarded as out of earnings and profits of the taxable year shall be considered a taxable dividend to the extent of the earnings and profits accumulated since February 28, 1913, and available on the date of the distribution. In any case in which it is necessary to determine the amount of earnings and profits accumulated since February 28, 1913, and the actual earnings and profits to the date of a distribution within any taxable year (whether beginning before January 1, 1936, or, in the case of an operating deficit, on or after that date) cannot be shown, the earnings and profits for the year (or accounting period, if less than a year) in which the distribution was made shall be prorated to the date of the distribution not counting the date on which the distribution was made.
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Treas. Reg. §1.316-2(c)§1.316-2(c)
The provisions of the section may be illustrated by the following example:
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Treas. Reg. §1.316-2(d)Any distribution by a corporation out of earnings and profits accumulated before March 1, 1913, or out of increase in value of property accrued before March 1, 1913 (whether or not realized by sale or other disposition, and, if realized, whether before, on, or after March 1, 1913), is not a dividend within the meaning of subtitle A of the Code.
Any distribution by a corporation out of earnings and profits accumulated before March 1, 1913, or out of increase in value of property accrued before March 1, 1913 (whether or not realized by sale or other disposition, and, if realized, whether before, on, or after March 1, 1913), is not a dividend within the meaning of subtitle A of the Code.
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Treas. Reg. §1.316-2(e)A reserve set up out of gross income by a corporation and maintained for the purpose of making good any loss of capital assets on account of depletion or depreciation is not a part of surplus out of which ordinary dividends may be paid.
A reserve set up out of gross income by a corporation and maintained for the purpose of making good any loss of capital assets on account of depletion or depreciation is not a part of surplus out of which ordinary dividends may be paid. A distribution made from a depletion or a depreciation reserve based upon the cost or other basis of the property will not be considered as having been paid out of earnings and profits, but the amount thereof shall be applied against and reduce the cost or other basis of the stock upon which declared. If such a distribution is in excess of the basis, the excess shall be taxed as a gain from the sale or other disposition of property as provided in section 301(c)(3)(A). A distribution from a depletion reserve based upon discovery value to the extent that such reserve represents the excess of the discovery value over the cost or other basis for determining gain or loss, is, when received by the shareholders, taxable as an ordinary dividend. The amount by which a corporation's percentage depletion allowance for any year exceeds depletion sustained on cost or other basis, that is, determined without regard to discovery or percentage depletion allowances for the year of distribution or prior years, constitutes a part of the corporation's “earnings and profits accumulated after February 28, 1913,” within the meaning of section 316, and, upon distribution to shareholders, is taxable to them as a dividend. A distribution made from that portion of a depletion reserve based upon a valuation as of March 1, 1913, which is in excess of the depletion reserve based upon cost, will not be considered as having been paid out of earnings and profits, but the amount of the distribution shall be applied against and reduce the cost or other basis of the stock upon which declared. See section 301. No distribution, however, can be made from such a reserve until all the earnings and profits of the corporation have first been distributed.
121 Citing Cases
12Courts sometimes speak colloquially of a corporate distribution to a shareholder with respect to his stock as a “dividend” without considering that section 316 accords the term a technical meaning.
Therefore, we hold that the diverted gross receipts from BCO of$195,359, $132,584, and $215,580 are taxable to petitioners as constructive dividends for 2003, 2004, and 2005, respectively.
"A constructive dividend arises '[w]here a corporation confers an economic benefit on a shareholder without the expectation of repayment, * * * even though neither the corporation nor the shareholder intended a dividend.'" Hood v. Commissioner, 115 T.C. 172, 179 (2000) (quoting Magnon v. Commissioner, 73 T.C. 980, 993-994 (1980)). A. Cons
Therefore, we hold that the diverted gross receipts from BCO of$195,359, $132,584, and $215,580 are taxable to petitioners as constructive dividends for 2003, 2004, and 2005, respectively.
Section 301(c)(1) provides that the portion ofa distribution "which is a dividend (as defined in section 316) shall be included in gross income." Section 316(a) provides that "the term 'dividend' means any distribution ofproperty made by a corporation to its shareholders" out ofcurrent E&P or out ofE&P "accumulated after February 28, 1913." The parties agree that CSE had no current or accumulated E&P for the year in which i
- 98 - underpayment oftax attributable to any substantial understatement ofincome tax or negligence or disregard ofrules or regulations. Sec. 6662(a) and (b)(1) and (2). Negligence includes any failure to make a reasonable attempt to comply with the provisions ofthe Code; and disregard includes any careless, reckless, or intentional disr
- 98 - underpayment oftax attributable to any substantial understatement ofincome tax or negligence or disregard ofrules or regulations. Sec. 6662(a) and (b)(1) and (2). Negligence includes any failure to make a reasonable attempt to comply with the provisions ofthe Code; and disregard includes any careless, reckless, or intentional disr
e Meridien Hotels, Inc. v. LHO Fin. P'ship I, L.P., 255 S.W.3d 807, 816 (Tex. App.--Dallas 2008). Extrinsic evidence, also known as "parol evidence", is "evidence not contained in the body ofan agreement or other instrument". 36 Tex. Jur., Evidence, sec. 316. Extrinsic evidence ofthe parties' intent includes: ¹°For example, in Furmanite Worldwide, Inc. v. NextCorp., Ltd., 339 S.W.3d 326, 333 (Tex. App.--Dallas 2011), one provision ofa contract provided that the date ofthe agreement was August 31
ustments that would result from the primary adjustments * * * had Taxpayer and the Commissioner not entered into this agreement." ¹#The closing agreement states that the payments and prepayments ofthe accounts shall not be treated as dividends under sec. 316 or for any other Federal income tax purpose and are therefore not eligible for a foreign tax credit under secs. 901-902 or a DRD under secs. 241-247. - 13 - The IRS subsequently issued a notice ofdeficiency dated April 19, 2012, determining
t, the Vlachs must include those payments in income as constructive dividends.38 "See supra p. 11. 38Petitioners did not address whether the corporations had sufficient earnings and profits for the Court to categorize the payments as dividends under sec. 316. See, e.g., Truesdell v. Commissioner, 89 T.C. 1280, 1295-1296 (1987) (holding that because neither party introduced evidence regarding earnings and profits, taxpayer (continued...) - 34 - [*34] Section 61(a)(1) also provides that gross inco
Section 316 (a) defines a dividend as "any distribution of property made by a corporation to its shareholders--(1) out ofits earnings and 8(...continued) Charles Schwab declined to issue one. -.10 - profits accumiilated after February 28, 1913, or (2) out ofits earnings and profits ofthe taxable ear".9. Ifall or.part ofthe distribution is not a di
section 302(b), if the ESOP is treated as the owner of the redeemed preferred stock, then the redemptions did not result in a meaningful reduction in the ESOP's proportionate interest in petitioner and thus would qualify for dividend treatment under section 316. The Court of Appeals concluded that the ESOP was the owner of the stock; this established the status of the stock redemption payments as dividends. The court then had to determine whether this dividend ran afoul of section 162(k). Sectio
section 302(b), if the ESOP is treated as the owner of the redeemed preferred stock, then the redemptions did not result in a meaningful reduction in the esop’s proportionate interest in petitioner and thus would qualify for dividend treatment under section 316. The Court of Appeals concluded that the ESOP was the owner of the stock; this established the status of the stock redemption payments as dividends. The court then had to determine whether this dividend ran afoul of section 162(k). Sectio
benefit, or income to the owner-taxpayer.’” P.R. Farms, Inc. v. Commissioner, 820 F.2d 1084, 1088 (9th Cir. 1987) (quoting Meridian Wood Prods. Co. v. United States, 725 F.2d 3The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 10 - 1183, 1191 (9th Cir. 1984)), affg. T.C. Memo. 1984-549). “The crucial concept in a finding that there is a constructive dividend is that the corporation has conferred a benefit on the shareh
benefit, or income to the owner-taxpayer.’” P.R. Farms, Inc. v. Commissioner, 820 F.2d 1084, 1088 (9th Cir. 1987) (quoting Meridian Wood Prods. Co. v. United States, 725 F.2d 3The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 10 - 1183, 1191 (9th Cir. 1984)), affg. T.C. Memo. 1984-549). “The crucial concept in a finding that there is a constructive dividend is that the corporation has conferred a benefit on the shareh
Section 61(a) provides that gross income includes all income from whatever source derived, unless excludable by a specific provision of the Code.
Commissioner, T.C. Memo. 2002-104. However, common ownership alone will not support a finding of constructive dividends. Sammons v. Commissioner, 472 F.2d 449, 451 (5th Cir. 42The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 45 - 1972), affg. in part and revg. in part on another ground T.C. Memo. 1971-145. “Corporate expenditures constitute constructive dividends only if 1) the expenditures do not give rise to a dedu
Commissioner, T.C. Memo. 2002-104. However, common ownership alone will not support a finding of constructive dividends. Sammons v. Commissioner, 472 F.2d 449, 451 (5th Cir. 42The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 45 - 1972), affg. in part and revg. in part on another ground T.C. Memo. 1971-145. “Corporate expenditures constitute constructive dividends only if 1) the expenditures do not give rise to a dedu
vidends. DiZenzo v. Commissioner, 348 F.2d 122, 125-127 (2d Cir. 1965) (burden is on taxpayers to establish corporation did not have sufficient E&P), revg. T.C. Memo. 1964-121; Truesdell v. 47The determination of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 39 - Commissioner, supra; Zalewski v. Commissioner, T.C. Memo. 1988- 340; Delgado v. Commissioner, T.C. Memo. 1988-66; see Price v. United States, 335 F.2d at 677 (“It is the burden of the taxpaye
Commissioner, T.C. Memo. 2002-104. However, common ownership alone will not support a finding of constructive dividends. Sammons v. Commissioner, 472 F.2d 449, 451 (5th Cir. 42The determination and calculation of earnings and profits is governed by sec. 316 and the regulations promulgated thereunder. - 45 - 1972), affg. in part and revg. in part on another ground T.C. Memo. 1971-145. “Corporate expenditures constitute constructive dividends only if 1) the expenditures do not give rise to a dedu
61(a); in the absence of better proof by respondent, we decline to do so and hold that the taxation of the amounts at issue is governed by section 301(c). Under section 301, the distribution is treated as a dividend if it meets the requirements of section 316. Under section 316(a), dividends are taxable to the shareholder as ordinary income to the extent of the earnings and profits of the corporation, and any amount received by the shareholder in excess of earnings and profits is considered a n
Section 316 and its regulations provide that distributions to shareholders with respect to their stock must be treated as dividends to the extent of both current and accumulated earnings and profits. “To the extent that a corporation has current earnings and profits as of the close of its taxable year, any distribution made in that year will be pre
* * * * * * * (c) Amount Taxable.--In the case of a distribution to which subsection (a) applies-- (1) Amount constituting dividend.--That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income.
In Hagaman, 958 F.2d at 694, we stated that "[b]ecause dividends can only be distributed to the extent of a corporation's earnings and profits under IRC § 316, a court can only find a constructive dividend to be taxable as ordinary income to the extent of the corporation's earnings and profits." Another opinion recognizes that "[o]therwise, a distribution to the stockholder is merely a recovery from his basis in his shares to the extent that he has such a basis; to the extent that the payments e
— That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income.
Petitioners cite section 316, which generally defines a dividend as a distribution out of a corporation’s earnings and profits.
rsonally. We hold petitioner must include the payment in his income as a constructive dividend.15 15 Petitioners neither argued nor proved that Midwest did not have sufficient earnings and profits for us to categorize the payment as a dividend under sec. 316. - 25 - Section 6662(a) The Muhichs Respondent determined the Muhichs are liable for the accuracy-related penalty under section 6662(a) and (b)(1) for both years in issue. This section imposes a penalty equal to 20 percent of the portion of
23, 1985), provides that "gross income includes compensation for services".
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). Additionally, the
For the principal rules with respect to dividends includible in gross income, see section 316 and the regulations thereunder.
A dividend need not be formally declared or even intended by the corporation. Noble v. Commissioner, 368 F.2d 439, 442 (9th Cir. 1966), affg. T.C. Memo. 1965-84; Commissioner v. Makransky, 321 F.2d 598 (3d Cir. 1963), affg. 36 T.C. 446 (1961); Sachs v. Commissioner, 277 F.2d 879 (8th Cir. 1960), affg. 32 T.C. 815 (1959). In addition, the
First, the distributions are dividends, as determined under section 316, to the extent of the corporation’s earnings and profits.
316.127 (1993); Or. Admin. R. 150-316.127-(A)(3)(a)(A). Mr. Cummings and two employees testified that Mr. Cummings spent a little more than 1 day a week in Portland. However, Mr. Cummings did not file Oregon income tax returns in 1989 and 1990. That suggests that he did not perform services for petitioner in Oregon during those years. Mrs. Cum