Court Opinion

ID: 9482694
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:58:03.94217+00
Date Added: 2024-06-11T17:49:09.057954
License: Public Domain

RALPH B. GUY, JR., Circuit Judge,
concurring in part and dissenting in part.
I concur with the court except for the discussion of the constructive dividend issue in Part Y. Since I believe that the Tax Court correctly resolved that issue, I dissent from a remand for further consideration.
I agree that the Tax Court properly added $550,000 in pre-1975 unreported vending income to Truck Haven’s earnings and profits. There is no dispute that this sum is sufficient to cover Hagaman’s post-1974 diversions. I disagree, however, with the proposal to remand so that the Tax Court may consider whether some or all of the $550,000 had been distributed to Hagaman before 1975.
At trial, Hagaman had the burden to establish that Truck Haven lacked sufficient earnings and profits to cover his post-1974 diversions. DiZenzo v. Commissioner, 348 F.2d 122, 126-27 (2nd Cir.1965). Hagaman could have met that burden by showing that Truck Haven’s earnings were insufficient because he had diverted some or all of the $550,000 before 1975.
Instead, Hagaman’s position before the Tax Court was that there had been no diversion, either before or after 1975. Ha-gaman therefore produced no evidence that any portion of the $550,000 had been distributed before 1975.1 Since Hagaman completely failed to meet his burden of establishing that Truck Haven lacked sufficient earnings and profits to cover the diversion, I would affirm the Tax Court’s decision in its entirety.

. Of course, Hagaman did not want to prove that he had diverted corporate income from 1971 to 1974 because such proof would tend to undercut his claim that he had not diverted income after 1974. However, the fact that he was in a strategic bind did not relieve Hagaman of his burden to prove that there were insufficient corporate earnings and profits to support a dividend.