Opinion ID: 350814
Heading Depth: 1
Heading Rank: 4

Heading: Constructive Dividend

Text: 14 The Tax Court erred in finding that the entire amount of the corporation's disallowed expenses automatically became constructive dividend to an owner of the corporation. The test for constructive dividends in such circumstances is two-fold; not only must the expenses be non-deductible to the corporation, but they must also represent some economic gain or benefit to the owner-taxpayer. (U. S. v. Gotcher, 401 F.2d 118, 121-124 (5th Cir. 1968)). No finding was made with respect to the latter element. Indeed, it is undisputed that many of the country club expenses were incurred by others than taxpayers. And other expenditures, while not properly supported corporate expenses, are not necessarily income to the taxpayers. 15 The mere fact that funds pass through the owner-taxpayers' hands is not alone determinative by the Tax Court's own decisions, e. g., Marks, TC Memo. 1963-304; Ashby, 50 TC 409. Some of the disallowed expenses seem clearly to have provided no economic benefit, or income, to taxpayer. To support its determination as to which do, the Tax Court must find appropriate facts in the record. 16 This matter is remanded to the Tax Court for further proceedings consistent with this opinion.