14 0 T.C. No . 19

UNITED STAT ES TAX COURT

TERRY J. WEL LE AND CHRIS SE J. WEL LE, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 15 6- 11 . Fil edJune 27 , 20 13 .
P-H is th e so le sh areh ol de r of TW C, a s ub ch . C co rp or at io n. Ps us edTW C to faci li ta te th e co ns tru ct io n o f th ei r la ke fro ntho m e in th at TW C k ep t trackof c on st ru ct io n c os ts an d TWC’ s fr am in g c rew fram edth e h om e. Ps, h owe ve r, pe rs on al ly hire d the subc on tra ct or s an d o rd eredbu il di ng supp li es fro m th e v en do rs inTW C’s na m e. Ps rei m bu rs edTW C fo r it s co st s, i nc lu di ng ov erh ead , bu t d idno t p ay TW C anam ou ntequa l t o the pro fitm arg inof 6 % to 7% tha t TWC no rm al ly charg edit s cu st om ers (fo rg on e p ro fit ). R de te rm in edth atPH recei ve d aco ns tru ct iv e d iv id en d fr om TW C in anam ou ntequa l t o TW C’s fo rg on e p ro fit . Held : P-H d idno t re cei ve a co ns tru ct iv e d iv id en d e qu al to TW C’s fo rg on e p ro fitfro m servi ces th atTW C p ro vi de d dur in g the bu il di ng of P s’ ho m e b ecau se th e tr an sa ct io ns di d n otres ul t i n the di st rib ut io n o f cu rren t o r acc um ul at edearn in gs an d p ro fit s.- 2 -

Jo n J . Jen se n, fo r pe ti ti on ers . Ch ris ti naL. Coo k, fo r res po nd en t. MARVEL, Ju dg e: Res po nd en t d et erm in eda de fic ie nc y of $ 10 ,62 0 i n pe ti ti on ers ’ Fed eral in co m e ta x andanaccuracy-rela te d p en al ty und er s ect io n 66 62 (a) of $ 2,1 24 for20 06 . The i ss ue s fo r de ci si on are: (1) whethe r pe ti ti on er

1 Terry J. Well e rec ei ve d aco ns tru ct iv e d iv id en d o f $4 8,2 75 fro m hi s wh ol ly owne d subc hapt er C co rp or at io n, Terry W el le Co ns tru ct io n, In c. (TW C), i n 2 00 6; an d (2 ) whe th er p et it io ne rs are l iabl e fo r th e acc ur acy-rela te d p en al ty und er s ect io n 66 62 (a). FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at ed . The s ti pu la ti on of f act s i s in co rp or at edhe rei n b y

th is refe ren ce. Pet it io ne rs res id edinNort h Dak ot a whe n th ey pe ti ti on edth is Co urt. TW C is a co ns tru ct io n c om pa ny spe ci al iz in g i n m

ul ti fam il y ho us in g pr ojec ts . For m os t jo bs th atclo se d dur in g 2 00 6 TWC hadpro fitm arg in s o f 6% t o 7%. Mr . W el le is th e p res id en t an d s ol e sh areh ol de r of TW C. Unl es s o th erwi se in di cat ed , sec ti on refe ren ces are t o the Int ern al Rev enue 1 Co de (Co de ) in effe ctforth e y ear a t i ss ue , andRu le refe ren ces are t o the Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e.- 3 -

Pet it io ne rs own edlak efro ntpro pe rty in De tro itLake s, M in ne so ta , onwhi ch th ey pl an ne d t o b ui lda se co ndho m e (l ak efro ntho m e). In20 04 pe ti ti on ers be ga n co ns tru ct io n o f th e la ke fro ntho m e. To k eep tra ckof m at eri al an d o th er co ns tru ct io n c os ts , Mr. W el le cau se d TWC to op ena “ co stpl us ” job acco un t o n i ts bo ok s. Pet it io ne rs , ho wev er, p ers on al ly con ta ct edall of t he subc on tra ct or s an d bu il di ng supp ly ven do rs th atbu il t o r supp li edm at eri al s fo r th e la ke fro ntho m e an d act edas t he ir o wn g en eral co nt ract or s dur in g i ts co ns tru ct io n. Dur in g the co ns tru ct io n TWC pai d the subc on tra ct or s an d v en do rs di rect ly, an d i ts fram in g c rew fra m edth e la ke fro ntho m e. Pet it io ne rs rep ai d TWC for a ll am ount s p ai d t o the subc on tra ct or s an d a ls o re im bu rs edTW C fo r it s l ab or an d ov erh eadco st s. TW C, ho wev er, d idno t ch arg e p et it io ne rs , andpe ti ti on ers di d n ot pa y to TW C, anam ountequa l t o the cu st om ary pr of itm arg inth atTW C u se d t o cal cu la te th e co nt ractpri ce tha t i t ch arg edit s u nr el at edcli en ts (fo rg on e p ro fit ). Res po nd en t d et erm in edth atMr. Welle rece iv eda qu al ifi eddi vi de ndof $4 8,2 75 fro m

TW C in 20 06 , equ al to th e fo rg on e p ro fit .

OPINION Res po nd en t co nt en ds th atMr. Welle rece iv eda co ns tru ct iv e d iv id en d fr om TW C whe n TWC bu il t p et it io ne rs ’ la ke fro ntho m e wit ho utch arg in g the m an am ountequa l t o i ts cu st om ary pr of itm arg inof 6 % to 7%.- 4 -

Pet it io ne rs co nt en d tha t (1 ) Mr. Well e d idno t re cei ve a co ns tru ct iv e di vi de ndbe cau se a sh areh ol de r do es no t re cei ve a co ns tru ct iv e d iv id en d wh ena co rp or at io n p ro vi de s s erv ic es to th e sh areh ol de r atco st ; an d (2 ) res po nd en t’s de te rm in at io n o f th e m eas ur e o f an y co ns tru ct iv e d iv id en d tha t M r. W el le m ay ha ve rece iv edwas e rro ne ou s b ecau se th e se rv ic es th atTW C p ro vi de d t o M r. W el le were n otco m

pa rab le to th e se rv ic es th atitpro vi de d t o i ts un rel at edcli en ts . Bec au se we de ci de on th is reco rdth atMr. Welle di d n otrece iv e a co ns tru ct iv e di vi de nd , we ne edno t ad dr es s p et it io ne rs ’ se co ndco nt en ti on .

2 3

W e d eci de th is cas e wit ho utreg ardto th e al lo cat io n o f th e b ur de n o f pr oo f. 2 W e th eref

or e n eedno t d eci de whet he r pe ti ti on ers sat is fie d the requi rem en ts of s ec. 74 91 (a). See Blo dg et t v . Comm is si on er, 3 94 F.3d10 30 , 10 39 (8t h C ir. 2 00 5) , aff’g T.C. Me m o. 2 00 3- 21 2; Knu ds env. Co m m is si on er, 1 31 T.C. 18 5, 1 88 -1 89 (2 00 8) . W e que st io n the ti m in g o f res po nd en t’s co ns tru ct iv e d iv id en d a dju st m en t.

3 TW C adva nc edpaym en t o f th e expe ns es rel at in g t o the co ns tru ct io n o f pe ti ti on ers ’ lake fro ntho m e dur in g 2 00 4 and20 05 . Add it io na ll y , Mr. W el le cred ib ly test ifi edth athe an d p et it io ne r Ch ris se J. Welle m ov edin to th e la ke fro nt ho m e dur in g M em or ia l Day w eek en d o f 20 05 . Accor di ng ly, itap pe ars th ata cred ib le arg um en t co ul d h av e b eenm ad e th atany co ns tru ct iv e d iv id en d aro se in 20 04 an d/ or20 05 . See s ec. 1 .45 1- 1( a), In co m e Tax Reg s. Ho wev er, we d eem th is is su e wai ve d b y

pe ti ti on ers be cau se th ey

ne ve r rai se d i t. See Mu hi chv. Co m m is si on er, 2 38 F.3d86 0, 8 64 n.1 0 (7 th Cir . 20 01 ) (i ss ue s n otad dr es se d o r de ve lo pe d are d eem edwaiv ed --i t i s n otth e Co urt’s o bl ig at io n t o re se arch an d co ns tru ctth e p art ie s’ arg um en ts ), aff’g T.C. Me m o. 1 99 9- 19 2.- 5 -

I. Co ns tru ct iv e Div id en ds Gene ral ly Sect io n 6 1( a)(7 ) in cl ud es di vi de nd s i n atax pa y er’s g ro ss in co m e. Sect io n 31 6( a) d efi ne s a d iv id en d a s an y di st rib ut io n o f pr op erty

th ata co rp or at io n m ak es to it s s ha reh ol de rs ou t o f it s earn in gs an d p ro fit s ac cum ul at edaft er Fe brua ry

28 , 19 13 , or o utof i ts earn in gs an d p ro fit s fo r th e ta xabl e y ear. Se ct io n 3 17 (a) d efi ne s pr op erty as m on ey , sec ur it ie s, an d any oth er p ro pe rty exce ptst oc k i n the di st rib ut in g c or

po rat io n. We hav e h el d tha t, u nd er s om e ci rcu m st an ces , th e pr ov is io n o f se rv ic es by a corp or at io n t o i ts sh areh ol de rs co ns ti tu te s “pr op erty ” withi n the m ean in g o f se ct io n 3 17 (a). See Mag no n v . Commis si on er, 7 3 T.C. 9 80 , 99 3 (1 98 0) (ci ti ng Loft in& W oo da rd , Inc . v. Un it edSta te s, 5 77 F.2d12 06 , 12 14 (5 th Cir . 19 78 ), an d B en es v. Co m mis si on er, 4 2 T.C. 3 58 , 37 9 (1 96 4) , aff’d, 3 55 F.2 d 9 29 (6t h C ir. 1 96 6) ).

“ A con st ru ct iv e d iv id en d aris es ‘ [w]here aco rp or at io n c on fers aneco no mic be ne fiton a sh areh ol de r witho utth e expe ct at io n o f rep aym en t, * * * ev enth ou gh ne ithe r th e co rp or at io n n orth e sh areh ol de r in te nd eda di vi de nd .’ ” Hoo d v . Co m m is si on er, 1 15 T.C. 17 2, 1 79 (20 00 ) (quo ti ng Mag no n v . Comm is si on er, 7 3 T.C. at 9 93 -9 94 ). “ ‘T he cru ci al co nc ep t i n afin di ng th atth ere i s a c on st ru ct iv e di vi de ndis th atth e co rp or at io n h as co nf erre d abe ne fiton th e sh areh ol de r in ord er to di st rib ut e av ai labl e earni ng s an d p ro fit s wi th ou t ex pe ct at io n o f rep aym en t.’”- 6 -

True sd el l v . Comm is si on er, 8 9 T.C. 1 28 0, 1 29 5 (1 98 7) (qu ot in g No bl e v . Co m m is si on er, 3 68 F.2d43 9, 4 43 (9t h C ir. 1 96 6) , aff’g T.C. Mem o. 1 96 5- 84 ); s ee al so Pal m er v . Comm is si on er, 3 02 U.S. 63 , 70 (19 37 ) (s ta ti ng th at , fora tra ns act io n t o b e tr eat edas ade em eddi vi de nd , “ itis at l eas t n eces sa ry to m ak e so m e sh owi ng th atth e tr an sa ct io n i s i n p ur po se or e ffec t u se d a s an im pl em en t fo r th e d is tri bu ti on of c or

po rat e earni ng s t o s to ckho ld ers ”); CTM Co ns tr., In c. v. Co m m is si on er, T.C. Mem o. 1 98 8- 59 0, 5 6 T.C.M . (CCH) 9 71 , 97 4 (1 98 8) (“ Gen eral ly, a co ns tru ct iv e d is tri bu ti on oc curs when co rp or at e as se ts are d iv ert ed to or f orth e b en efi t o f a s ha reh ol de r witho utad equa te co ns id erat io n fo r th e di ve rs io n.” (ci ti ng Samm on s v . Comm is si on er, 4 72 F.2d44 9 (5 th Cir . 19 72 ), aff’g inpart, re v’g i n p artT.C. Mem o. 1 97 1- 14 5) ). Howev er, “ ‘[n]ot e ve ry co rp or at e ex pe nd itur e [tha t] in ci de nt al ly con fer[ s] eco no m ic be ne fiton a sh areh ol de r is a co ns tru ct iv e d iv id en d.’” Loft in& W oo da rd , 57 7 F .2dat 1 21 5 (quo ti ng Cro sb y v. Uni te d S tate s, 4 96 F.2d13 84 , 13 88 (5t h C ir. 1 97 4) ). Whe re a co rp or at io n c on st ru ct iv el y di st rib ut es pro pe rty to ash areh ol de r, th e co ns tru ct iv e d iv id en d re cei ve d b y th e sh areh ol de r is ord in ari ly m eas ur edby the fai r m ark etva lu e o f th e b en efi t co nf erre d. Se e Ire landv. Un it edSta te s, 6 21 F.2d 73 1, 7 37 (19 80 ) (ci ti ng Loft in& W oo da rd , 57 7 F .2dat 1 22 3) ; M el vi n v . Co m m is si on er, 8 8 T.C. 6 3, 8 0- 81 (19 87 ), aff’d, 8 94 F.2d10 72 (9t h C ir. 1 99 0) .- 7 -

Howev er, wh ere f

ai r m ark etva lu e can no t b e rel iabl y asc ert ai ne d o r th ere i s ev id en ce tha t fa ir m ark etva lu e is anin ap pr op ria te m od e o f m eas ur em en t, the co ns tru ct iv e d iv id en d c anbe m eas ur edby the co stto th e co rp or at io n o f th e b en efi t co nf erre d. Se e Lof

ti n & W oo da rd , 57 7 F .2dat 1 22 3 (c it in g C omm is si on er v . Ris s, 37 4 F .2d16 1, 1 70 (8t h C ir. 1 96 7) , aff’g i n p art , rev ’g inpart T.C. M em o. 1 96 4- 19 0) . The Co de do es no t d efi ne th e te rm “ earn in gs an d p ro fit s” . See s ec. 3 16 (a); Hen ry C. BeckCo . v. Co m

mis si on er, 5 2 T.C. 1 , 6 (1 96 9) , aff’d p er curia m , 43 3 F.2 d 3 09 (5t h C ir. 1 97 0) . As we h av e p rev io us ly obs erv ed , th e cal cu la ti onof earn in gs an d p ro fit s i s n oteas y or o bv io us . See, e.g ., And ers on v. Co m m is si on er, 67 T.C. 52 2, 5 27 (19 76 ), aff’d, 5 83 F.2d95 3 (7 th Cir . 19 78 ); J uh a v . Co m m is si on er, T.C. Mem o. 2 01 2- 68 , 10 3 T.C.M . (CCH) 1 33 8, 1 34 1 (2 01 2) . For ex am pl e, al th ou gh sec ti on 1.3 12 -6 (a), In co m e Tax Reg s., p ro vi de s tha t a co rp or at io n m

us t co m pu te earn in gs an d p ro fit s u si ng th e sa m e m etho d o f acco un ti ng em

pl oyed i n c om

pu ti ng tax ab le in co m e, earn in gs an d p ro fit s ar e n ot equi va le ntto tax ab le in co m e. See C omm is si on er v . Whe el er, 3 24 U.S. 54 2, 5 46 (1 94 5) ; J aque s v . Comm is si on er, 9 35 F.2d10 4, 1 07 -1 08 (6t h C ir.1 99 1) , aff’g T.C. Mem o.1 98 9- 67 3. Th e rea so n fo r th is di st in ct io n i s tha t ea rn in gs an d p ro fit s i s a br oa d c on cep t “ whi chth e ta x l aw ha s u ti li zed‘ to ap pr ox im at e a co rp or at io n’s- 8 -

po wer t o m ak e d is tri bu ti on s wh ic h are m or e th anjus t a r eturn o f in ve st m en t.’” Hen ry C. BeckCo . v. Co m

mis si on er, 5 2 T.C. at6 (quo ti ng ArthurR. Alb rech t,

“ ‘D iv id en ds ’ an d ‘Earn in gs or P ro fit s’”, 7 Tax L. Rev. 1 57 , 18 3 (1 95 2) ). II. Serv ic es Pro vi de d b y a Co rp or at io n t o aSh areh ol de r atCo st Res po nd en t co nt en ds th atMag no n v . Commis si on er, 7 3 T.C. 9 80 , st an ds for th e p ro po si ti on th ata sh areh ol de r rec ei ve s a c on st ru ct iv e d iv id en d e qu al to th e co stof t he servi ces pro vi de d t o the sh areh ol de r by a cor po rat io n p lu s the co rp or at io n’s cu st om ary pr of itm arg in . In M ag no n v . Comm is si on er, 7 3 T.C. at 99 4- 99 6, we h el d tha t the am ou ntof t he co st s an d o ve rh eadforele ctric al servi ces pr ov id edby a corp or at io n t o ash areh ol de r witho utex pe ct at io n o f rep aym en t was a co ns tru ct iv e d iv id en d. Bu t we d idno t h ol d, an d the Co m m is si on er d idno t as se rt, th atth e co ns tru ct iv e d iv id en d the sh areh ol de r rec ei ve d i nc lu de d an am ou nt co rres po nd in g t o the co rp or at io n’s fo rg on e p ro fit . Si m il arl y , incas es su chas B en es v. Co m m is si on er, 4 2 T.C. at37 9, Nah ik ian v. Co m m is si on er, T.C. Mem o. 1 99 5- 16 1, 6 9 T.C.M . (CCH) 2 37 0, 2 37 2- 23 75 (1 99 5) , CTM Co ns tr., In c. v. Co m mis si on er, 5 6 T.C.M . (CCH) at97 4, an d Cl ev en ge r v. C omm is si on er, T.C. Mem o. 1 98 6- 14 9, 5 1 T.C.M . (CCH) 8 35 , 83 9- 84 0 (1 98 6) , aff’d, 8 26 F.2d13 79 (4t h C ir. 1 98 7) , we hel d tha t am ou nt s ex pe nd ed by the res pe ct iv e co rp or at io ns inco ns tru ct in g h om es for th ei r sh areh ol de rs- 9 -

co ns ti tu te d c on st ru ct iv e d iv id en ds . Butwe di d n otho ld , andth e Co m mis si on er di d n otass ert , th atth e co ns tru ct iv e d iv id en ds inth os e cas es eachin cl ud edan am ountco rres po nd in g t o the res pe ct iv e co rp or at io ns ’ fo rg on e p ro fit . Res po nd en t d oe s n otex pl ai n h ow a c or po rat io n’s d eci si on no t t o m ak e a pr of iton servi ces pro vi de d t o ash areh ol de r who ful ly reim bu rs es th e co rp or at io n fo r th e co stof t he servi ces (in cl ud in g o ve rh ead ) co ns ti tu te s a d is tri bu ti on of pr op erty th atreduc es th e co rp or at io n’s ea rn in gs an d p ro fit s u nd er s ect io n 3 16 (a), no r do es res po nd en t ci te an y cas es supp orti ng su cha po si ti on . Res po nd en t ar gu es th athi s p os it io n fo ll ows fro m th e g en eral rul e th atco ns tru ct iv e d iv id en ds are or di na ril y m eas ur edby the fai r m ark etva lu e o f th e b en efi t co nf erre d. Se e Ire land , 62 1 F .2dat 7 37 ; M el vi n v . Comm is si on er, 8 8 T.C. at80 -8 1. Itap pe ars to us , ho wev er, tha t re sp on de nt ’s arg um en t s ki ps anim po rta ntan al yti cal st ep requi red by sect io n 3 16 (a)- -we m

us t fi rs t fi ndth atth ere h as be ena di st rib ut io n o f pr op erty to th e sh areh ol de r th atreduc es th e co rp or at io n’s cu rren t o r acc um ul at edearn in gs an d p ro fit s. A fi nd in g tha t a s ha reh ol de r rec ei ve d aco ns tru ct iv e d iv id en d fr om a co rp or at io n i s o nl y

ap pr op ria te wher e “ co rp or at e as se ts are d iv ert edto or f orth e be ne fitof ash areh ol de r”, CTM C on st r., Inc . v. Co m m is si on er, 5 6 T.C.M . (CCH) at97 4, “ inord er t o d is tri bu te av ai labl e earni ng s an d p ro fit s wi th ou t ex pe ct at io n o f rep aym en t” , Trues de ll v. Co m m is si on er, 8 9 T.C. at12 95 ; s ee al so Pal m er v .- 10 -

Co m m is si on er, 3 02 U.S. at 6 9 (“ Whi le a sa le of c or po rat e as se ts to st oc kh ol de rs is , ina li te ral sen se , a di st rib ut io n o f it s p ro pe rty, suc h atra ns act io n d oe s n ot ne ces sa ril y

fal l wi th inth e st atut ory

de fin it io n o f a d iv id en d. Fo r a s al e to st oc kh ol de rs m ay

no t re su ltinan y

di m in ut io n o f it s n etwort h andinth atcas e can no t re su ltinan y

di strib ut io n o f it s p ro fit s.”) ; Ho ni gm anv. Co m m is si on er, 4 66 F.2 d 6 9, 7 4 (6 th Cir . 19 72 ) (n ot in g tha t the be lo w-m ark etsal e o f co rp or at e as se ts atis su e d im in is he d the ne t wo rthof t he co rp or at io n) , aff’g i n p art , rev ’g inpart, an d re m an di ng 55 T.C. 10 67 (19 71 ); Go ld st ei n v . Comm is si on er, 2 98 F.2d56 2, 56 8 (9 thCir . 19 62 ) (n ot in g tha t co rp or at e as se ts were re du cedinth e am ou nthe ld to be a di sg ui se d d iv id en d) , aff’g T.C. Mem o. 1 96 0- 27 6; McC ab e Pac ki ng Co . v. Uni te d S tate s, 8 09 F. Sup p. 6 14 , 61 7 (C .D. Ill . 19 92 ) (h ol di ng th ata sh areh ol de r’s us e o f a d is card edsl au gh te rh ou se bypro du ctwas n ota co ns tru ct iv e d iv id en d t o the sh areh ol de r be cau se co rp or at e as se ts were n otdi st rib ut edor e xp en de d) . W e can no t s ee h ow TWC’ s p ro vi si onof s erv ic es to Mr. Welle at c os t res ul te d i n the di ve rs io n o f co rp or at e as se ts or t he di st rib ut io n o f it s ea rn in gs an d pr of it s. Mo reo ve r, we do no t thi nkth atTW C’s pr ov is io n o f se rv ic es to Mr. Welle atco stwas “ inpu rp os e o r effe ct* * * an im pl em en t fo r th e d is tri bu ti on of co rp or at e earni ng s” an d p ro fit s. See Pal m er v . Comm is si on er, 3 02 U.S. at 7 0.- 11 -

By co nt ras t, i n c as es in vo lv in g the barg ai n s al e o f pr op erty to a sh areh ol de r, we ha ve he ldth atth e sh areh ol de r rec ei ve s a c on st ru ct iv e d iv id en d e qu al to th e ex ces s o f th e fai r m ark etva lu e o ve r th e sa le pri ce, s ee, e.g ., Dell in ge r v. Co m m is si on er, 3 2 T.C. 1 17 8, 1 18 2- 11 83 (19 59 ); Ne ls on v. Co m m is si on er, T.C. Mem o. 1 98 2- 36 1, 4 4 T.C.M . (CCH) 2 77 , 28 1 (1 98 2) , aff’d, 7 67 F.2d66 7 (1 0t h Ci r. 19 85 ); s ee al so sec . 1.3 01 -1 (j), Inc om e Tax Reg s., b ecau se th e p ro pe rty bei ng so ldis anass etof t he co rp or at io n andit s s al e fo r le ss th anfai r m ark etva lu e di ve rts actua l v al ue othe rwis e av ai labl e to th e co rp or at io n t o o r fo r th e b en efi t o f a sh areh ol de r, se e Hon ig m anv. Co m m is si on er, 4 66 F.2dat 7 4; Gol ds te inv. Co m m is si on er, 2 98 F.2dat 5 68 . Sim il arl y , we hav e h el d tha t, wh ere aco rp or at io n pr ov id es a sh areh ol de r with the us e o f co rp or at e p ro pe rty andth e sh areh ol de r do es no t fu ll y an d re as on ab ly reim

bu rs e th e co rp or at io n fo r it s u se , th e sh areh ol de r ha s rece iv eda co ns tru ct iv e d iv id en d e qu al to th e fai r m ark etva lu e o f th e u se of t he pr op erty . See Me lv inv. Co m m is si on er, 8 8 T.C. at80 -8 1. InMel vi n, h owe ve r, we ob se rv edth atin ci de nt al or i ns ig ni fic an t u se of c or po rat e p ro pe rty m ay

no t ju st ify a fin di ng of aco ns tru ct iv e d iv id en d, i d. at82 (ci ti ng Uni te d An il in e Co . v. Co m m is si on er, 3 16 F.2d70 1, 7 03 (1s t Ci r. 19 63 ), aff’g T.C. Me m o. 1 96 2- 60 ); s ee al so Loft in& W oo dard , 57 7 F .2dat 1 21 4, an d we s pe ci fic al ly foundth atth e- 12 -

ta xp ay er’s p ers on al us e o f th e p ro pe rty was n otin ci de nt al to th e ta xp ay er’s bu si ne ss us e o f th e p ro pe rty, Melv inv. Co m m is si on er, 8 8 T.C. at82 -8 3. TW C m ai nt ai ne d i ts co rp or at e in fras tu ctur e an d wo rk fo rce f orbu si ne ss pu rp os es . Mr. W el le ’s us e o f TW C dur in g the co ns tru ct io n o f pe ti ti on ers ’ la ke fro ntho m e was at m os t i nc id en ta l t o tho se pu rp os es . The m os t tha t ca n b e sa idab ou t M r. W el le ’s us e o f TW C is th athe us edth e co rp or at io n a s a c on du itin pa y in g s ub co nt ract or s an d v en do rs an d tha t h e o bt ai ne d s om e li m it edservi ces fro m co rp or at e em

pl oyees. Mr . W el le ful ly reim bu rs edth e co rp or at io n fo r al l co st s, i nc lu di ng ov erh ead , ass oc ia te d wi th th os e se rv ic es , andTW C d idno t d iv ert actua l v al ue othe rwis e av ai labl e to itby fail in g t o app ly its cu st om ary pr of it m arg ininde te rm in in g the am ou ntMr. Welle ha d t o re im bu rs e th e co rp or at io n. W e th eref

or e co nc lu de th atth is arrang em en t d idno t o pe rat e as a ve hi cl e fo r th e di st rib ut io n o f TW C’s cu rren t o r acc um ul at edearn in gs an d p ro fit s wi th inth e m ean in g o f se ct io n 3 16 (a). III. Co nc lu si on W e h ol d tha t M r. W el le di d n otrece iv e co ns tru ct iv e d iv id en d i nc om e whe n TW C p ro vi de d s erv ic es to hi m at c os t an d fo r whi chhe ti m el y pa id . Accor di ng ly,- 13 -

we do no t s us ta inres po nd en t’s d efi ci en cy de te rm in at io n, an d we t hu s n eedno t de ci de whet he r anaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a) wo ul d b e ap pr op ria te . W e h av e co ns id eredth e p art ie s’ rem ai ni ng arg um en ts , andto th e ex te ntno t di sc us se d abo ve , con cl ud e th os e arg um en ts are i rrel ev an t, m oo t, o r witho utm eri t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r pe ti ti on ers .