MEMORANDUM FINDINGS1984 Tax Ct. Memo LEXIS 35">*38 OF FACT AND OPINION

SCOTT, Judge: Respondent determined deficiencies in petitioners' Federal income taxes for the calendar years 1977 and 1978 as follows:

The issues for decision are as follows: (1) Whether corporate petitioner during 1977 and 1978 made payments to the individual petitioners or made payments for their benefit from its corporate bank accounts at the Exchange National Bank and the Lee County Bank, resulting in the characterization of such payments as taxable dividends pursuant to section 301(c)(1); ² (2) whether individual petitioners are entitled to an investment tax credit of $691 in 1977; (3) whether individual petitioners are entitled to a new jobs credit of $108 in 1977; and (4) whether corporate petitioner is entitled to deduct in 1977 and 1978 amounts expended for repairs, rental payments, taxes, interest, depreciation, advertising, contributions, and other business expenses.

1984 Tax Ct. Memo LEXIS 35">*39 FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

Petitioners, John C. Amis, Jr., and Gemae Amis, husband and wife, resided in Bonita Springs, Florida, at the time of the filing of the petition in this case and filed joint Federal income tax returns for calendar years 1977 and 1978 with the Internal Revenue Service Center, Chamblee, Georgia.

Petitioner, Amey and Monge, Inc., is a corporation duly organized under the laws of the State of Florida. At the time of the filing of its petition in this case, petitioner maintained its principal place of business in Ft. Myers, Florida. Petitioner filed its Federal income tax return for calendar years 1977 and 1978 with the Internal Revenue Service Center, Chamblee, Georgia.

During the years 1977 and 1978, petitioner John C. Amis, Jr. (Mr. Amis) was secretary and principal officer of Amey and Monge, Inc., and Carlos Monge and David Starnes were both major shareholders of Amey and Monge, Inc. Carlos Monge was also a corporate officer of Amey and Monge, Inc., during this time. Amey and Monge, Inc., had checking accounts at the Exchange National Bank and Lee County Bank during 1977 and 1978.

1984 Tax Ct. Memo LEXIS 35">*40 During 1977 and the first half of 1978, Amey and Monge, Inc., was engaged in the engineering and land surveying business and had its offices at 3605-3607 Hanson Street, Fort Myers, Florida. Amey and Monge, Inc., had telephones in its offices and owned trucks which were sometimes used by engineers and surveyors to transport survey crews to the work sites of projects on which Amey and Monge, Inc., was working. Amey and Monge, Inc., supplied the fuel for these trucks. Sometimes gasoline was put into the company trucks and payment made with a credit card that was in Mr. Amis' name. There was a service station in Fort Myers, Florida, at which Amey, Inc., a corporation of which Mr. Amis was sole shareholder, had a charge account. Sometimes employees of Amey and Monge, Inc., obtained gasoline for Amey and Monge, Inc., at the service station and charged the gasoline to the account of Amey, Inc. Amey and Monge, Inc., also used trucks in its business registered in the name of Amey, Inc.

Amey and Monge, Inc., used blueprinting machines belonging to Amey, Inc., in its business operations and also purchased blueprints from outside firms. When Amey and Monge, Inc., began operations, Amey, 1984 Tax Ct. Memo LEXIS 35">*41 Inc., advanced funds for expenses until Amey and Monge, Inc., had sufficient revenue to pay its own expenses and could repay Amey, Inc. Amey and Monge, Inc., agreed to pay rent to Amey, Inc., for use of its offices. Mr. Amis used his personal automobile in his work for Amey and Monge, Inc. Mr. Amis and Amey, Inc., furnished office supplies to Amey and Monge, Inc. Amey and Monge, Inc., also used drafting machines belonging to Amey, Inc. Mr. Monge had a Buick Skylark automobile that he used in the business of Amey and Monge, Inc., which was later acquired by Amey and Monge, Inc.

The offices of Mr. Amis' personal businesses, Gulf Maps, Bonita Realty, and his wholly owned corporation, Amey, Inc., were also located at 3605 and 3607 Hanson Street.

The following chart illustrates the utility bills, gasoline bills, accounting bills and miscellaneous bills that were paid out of the corporate bank accounts of Amey and Monge, Inc., during 1977:

The following payments were made out of the bank account of Amey and Monge, Inc., at the Exchange National Bank during 1978:

At least $100 of the payment to BIA was on a Buick Skylark.

On their Federal income tax return for taxable year 1977, ³ petitioners, Mr. and Mrs. Amis, claimed an investment credit in the amount of $691 and a new jobs credit in the amount of $108.

1984 Tax Ct. Memo LEXIS 35">*43 On its Federal income tax return for taxable year 1977, petitioner, Amey and Monge, Inc., claimed the following deductions:

1984 Tax Ct. Memo LEXIS 35">*44 On its Federal corporate income tax return for taxable year 1978, petitioner, Amey and Monge, Inc., claimed the following deductions:

In his statutory notice of deficiency issued to petitioners Mr. and Mrs. Amis1984 Tax Ct. Memo LEXIS 35">*45 for taxable year 1977, respondent made adjustments with respect to petitioners' reported income and deductions with the following explanations:

a. During 1977 Amey-Monge, Inc. made payments to you or for your benefit as summarized below. Such items are dividend income to you and income is accordingly increased:

b. The dividend exclusion is allowed.

* * *

The investment credit of $691.00 and the new job's credit of $108.00 deducted on your return are not allowed as a credit as you have not verified that you qualify for these.

1984 Tax Ct. Memo LEXIS 35">*46 In his statutory notice of deficiency issued to Mr. and Mrs. Amis for taxable year 1978, respondent made additional adjustments with respect to petitioners' reported income and deductions with the following explanation:

During the taxable year 1978, Amey-Monge, Inc. corporation made certain payments to you or for your benefit and/or permitted you to use corporate property without compensation.It is determined that such items comprise dividend income under sections 301 and 316 of the Internal Revenue Code and are includable in your gross income in the following amounts:

In his statutory notice of deficiency issued to petitioner, Amey and Monge, Inc., for taxable years 1977 and 1978, respondent determined that the deductions corporate petitioner claimed for taxable years 1977 and 1978 in the amounts of $111,940.58 and $77,668.55, ¹⁰ respectively, were not allowable because petitioner failed to substantiate: (1) that these expenditures were incurred; (2) 1984 Tax Ct. Memo LEXIS 35">*47 that the expenditures were incurred for the purpose designated; or (3) that the alleged expenses are deductible pursuant to sections 162, 167, or any other section of the Internal Revenue Code.

OPINION

1. Constructive Dividends.

The first issue for decision is whether Mr. and Mrs. Amis received dividend income in 1977 and 1978 in the amounts of $19,439.18 and $20,100, respectively, because of their personal obligations being satisfied out of the corporate bank accounts of Amey and Monge, Inc.

Respondent takes the position that in 1977 and 1978 the corporate bank accounts of Amey and Monge, Inc., were used to pay the personal expenses of Mr. and Mrs. Amis, their family, Mr. Amis' personal businesses, Bonita Realty and Gulf1984 Tax Ct. Memo LEXIS 35">*48 Maps, and Mr. Amis' solely owned corporation, Amey, Inc. ¹¹ In respondent's view, Mr. and Mrs. Amis failed to demonstrate that the payments out of the corporate bank accounts were directly connected to the business activities of Amey and Monge, Inc., and that such use of corporate funds for the personal benefit of Mr. and Mrs. Amis, their family and Mr. Amis' businesses results in a taxable dividend to them.

Petitioners take the position that they did not receive dividend income in the amount of $19,439.18 in 1977 because the payments Amey and Monge, Inc., made to Amey, Inc., in 1977 constituted in some instances payments of expenses of Amey and Monge, Inc., and in other instances monthly lease payments and thus were not dividend income to petitioners.

Petitioners take the position that they did not receive dividend income in the amount of1984 Tax Ct. Memo LEXIS 35">*49 $20,100 in 1978 because check No. 1822 paid by Amey and Monge, Inc., to Amey, Inc., in the amount of $20,000 was repayment of a loan that Amey, Inc., had made to Amey and Monge, Inc., and thus did not constitute a dividend to petitioners. Petitioners further take the position that check No. 1839 dated January 11, 1978, in the amount of $100 was a payment by Amey and Monge, Inc., to BIA for expenses of Amey and Monge, Inc. Petitioners contend that this did not constitute a taxable dividend to them because they did not have any personal insurance with BIA and the $100 payment constituted a deductible business expense incurred to insure an automobile used by Amey and Monge, Inc., in its trade or business.

Petitioners explain that it would have been impossible for Amey and Monge, Inc., to pay the personal expenses of Mr. and Mrs. Amis in 1977 and 1978 because the corporation was unable to pay even its own expenses and existed solely on loans from Amey, Inc., or Mr. Amis. The loans were deposited into the bank accounts of Amey and Monge, Inc., and were then used by Amey and Monge, Inc., to satisfy the corporation's financial obligations.

It is well settled that it a corporation1984 Tax Ct. Memo LEXIS 35">*50 satisfies a personal obligation of its shareholder or makes a payment for a shareholder's benefit, such payment may constitute a constructive dividend to that shareholder to the extent of available earnings and profits. Yelencsics v. Commissioner,74 T.C. 1513">74 T.C. 1513, 74 T.C. 1513">1529 (1980); Smith v. Commissioner,70 T.C. 651">70 T.C. 651, 70 T.C. 651">668 (1978); Sachs v. Commissioner,32 T.C. 815">32 T.C. 815, 32 T.C. 815">820 (1959), affd. 277 F.2d 879">277 F.2d 879, 277 F.2d 879">882 (8th Cir. 1960), cert. denied 364 U.S. 833">364 U.S. 833 (1960). This result is true even if the formalities of a dividend are lacking or if the distribution is not recorded on the corporate books. 74 T.C. 1513">Yelencsics,supra at 1529; Silverstein v. Commissioner,36 T.C. 438">36 T.C. 438, 36 T.C. 438">443 (1961). A dividend may result even if the corporation does not intend to confer an economic benefit upon the shareholder. Loftin and Woodard, Inc. v. United States,577 F.2d 1206">577 F.2d 1206, 577 F.2d 1206">1214 (5th Cir. 1978); 36 T.C. 438">Silverstein,supra at 443.

Under section 61(a)(7), gross income includes the receipt of any dividend. A dividend is defined in section 316(a) as "any distribution of property made by a corporation1984 Tax Ct. Memo LEXIS 35">*51 to its shareholders." The amount of a constructive dividend is equal to the amount of money received or the fair market value of the benefits conferred. Challenge Manufacturing Co. v. Commissioner,37 T.C. 650">37 T.C. 650, 37 T.C. 650">663 (1962); section 301(b)(1)(A).

In our view, corporate petitioner, Amey and Monge, Inc., used some funds from its corporate bank accounts to satisfy the personal obligations of Mr. and Mrs. Amis as well as Mr. Amis' sole proprietorships, Bonita Realty, Gulf Maps, Broadway Mobile Home Village and Mr. Amis' solely owned corporation, Amey, Inc. Petitioners, Mr. and Mrs. Amis, received dividend income in 1977 and 1978 to the extent they received an economic benefit from the corporation. The effect of the satisfaction of personal obligations of petitioners out of the corporate bank accounts was essentially equivalent to the corporation paying petitioners a dividend directly. Petitioners received the benefit of being relieved of their obligation to satisfy personal debts and therefore received constructive dividends in that amount.

The record also reflects, however, that Amey and Monge, Inc., satisfied some of its own business expenses in 19771984 Tax Ct. Memo LEXIS 35">*52 out of the corporate bank accounts and these amounts would not constitute dividend income to Mr. and Mrs. Amis. The record clearly shows that the following business expenses of Amey and Monge, Inc., were satisfied in 1977 out of its corporate bank accounts:

Although respondent has conceded that not more than $19,439.18 of dividends were received by Mr. and Mrs. Amis from Amey and Monge, Inc., in 1977, an addition of the remaining payments by Amey and Monge, Inc., shows the following:

1984 Tax Ct. Memo LEXIS 35">*53 There is therefore a discrepancy of $4,605.29 which is unaccounted for even under respondent's contentions. This and other evidence in the record leads us to conclude that we cannot determine the amount of payments by Amey and Monge, Inc., to Mr. Amis or for his benefit in the year 1977 which were dividends without considering to some extent the proper deductions for Amey and Monge, Inc., in that year, although this question is discussed in more detail later. As Mr. Amis argues, it is unrealistic to assume that Amey and Monge, Inc., had no expenses other than salaries and wages. However, this assumption does not substitute for proof. Fortunately, there is in the record sufficient evidence to show that Amey and Monge, Inc., did pay expenses other than salaries and wages in 1977 and that some of these payments were by checks included by respondent in the amounts he contends were dividends to Mr. Amis. The evidence is not precise, but in accordance with the holding in Cohan v. Commissioner,39 F.2d 540">39 F.2d 540 (2d Cir. 1930), we have used our best judgment to estimate these amounts based on the evidence available to us. The record shows that some of the gasoline1984 Tax Ct. Memo LEXIS 35">*54 bills paid for by Amey and Monge, Inc., which were in the name of Amey, Inc., or Mr. Amis, were actually for gasoline used for the business of Amey and Monge, Inc. From a review of the records and the testimony, we conclude that of the $3,604.39 of gasoline bills paid for Mr. Amis and his family and Amey, Inc., $2,000 represented expenses of Amey and Monge, Inc., which are deductible by the corporation and not dividends to Mr. Amis.

The record shows that Amey and Monge, Inc., occupied the same premises with Mr. Amis' private businesses at 3605 and 3607 Hanson Street. The record shows that over $1,800 of the utility bills paid by Amey and Monge, Inc., and charged as dividends to Mr. Amis were for utilities at 3605 or 3607 Hanson Street. We therefore conclude that at least $1,800 of the $5,702.34 of utility bills respondent charges to Mr. Amis as dividends from Amey and Monge, Inc., were paid by Amey and Monge, Inc., on its own behalf and are deductible by Amey and Monge, Inc., and not dividends to Mr. Amis. There was an agreement that Amey and Monge, Inc., pay rent to Amey, Inc., but we can identify no such payment other than utility bills.

We cannot actually identify1984 Tax Ct. Memo LEXIS 35">*55 accounting bills paid by Amey and Monge, Inc., for its own account in excess of the amount previously found. However, there are some indications in the record that other such bills were for Amey and Monge, Inc., and numerous indications of miscellaneous bills paid by Amey and Monge, Inc., for its own account. In our view, the evidence is sufficient to show that at least the discrepancy of $4,605.29 is covered by miscellaneous expenses properly deductible by Amey and Monge, Inc., and not chargeble as dividends to Mr. Amis. Therefore, of the $10,997.44 of miscellaneous expenses paid by Amey and Monge, Inc., $4,605.29 were paid for its own account and were not dividends to Mr. Amis.

We therefore conclude that Amey and Monge, Inc., paid amounts to Mr. Amis or for his benefit in 1977 totaling $14,761.57. ¹³ Petitioners have failed to show that the $14,761.57 paid to them or for their benefit by Amey and Monge, Inc., was not properly determined to be a dividend to them.

For taxable year 1978, we conclude that petitioners received1984 Tax Ct. Memo LEXIS 35">*56 constructive dividends in the amount of $20,000. ¹⁴ Petitioners have presented his Court with no evidence to support their explanation that the $20,000 payment constituted a loan repayment by Amey and Monge, Inc., to Amey, Inc. The record is devoid of evidence to support even the existence of the alleged loan and petitioners thus received a construction dividend in the amount of $20,000. Although the evidence is meager, we conclude that the $100 payment to BIA by Amey and Monge, Inc., constituted an amount paid to insure an automobile ¹⁵ used by Amey and Monge, Inc., in its trade or business and therefore was not a dividend to Mr. Amis. Thus we conclude that petitioners received a constructive dividend in 1978 in the amount of $20,000 from Amey and Monge, Inc.

1984 Tax Ct. Memo LEXIS 35">*57 2. Investment Tax Credit.

Petitioners Mr. and Mrs. Amis claimed an investment tax credit in the amount of $691 on their 1977 individual income tax return. Section 38 allows a credit against income taxes for certain depreciable property. Section 48(a) defines "section 38 property" to include only property with respect to which depreciation (or amortization) is allowable. Section 167(a) allows a depreciation deduction only for property used in a trade or business or held for the production of income.

In respondent's view, petitioners failed to establish the purchase date of the property, depreciable basis of the property, useful life of the property or its reasonable connection or use in petitioner's trade or business, and therefore respondent determined that petitioners were not entitled to the investment credit.

We agree with respondent and we hold that petitioners, Mr. and Mrs. Amis, have failed to prove that the property was used in their trade or business or held for the production of income. We therefore conclude that the investment credit is not allowable.

3. New Jobs Credit.

On their 1977 income tax return individual petitioners claimed a partner's1984 Tax Ct. Memo LEXIS 35">*58 new jobs credit in the amount of $108. The new jobs credit was enacted by Congress in 1977 to stimulate the job market by giving employers a tax incentive to hire new employees in 1977 and 1978. Section 44B allows employers an income tax credit for wages paid to or incurred for certain newly hired employees. See Metallics Recycling Co. v. Commissioner,79 T.C. 730">79 T.C. 730, 79 T.C. 730">736 (1982), affd. 732 F.2d 523">732 F.2d 523 (6th Cir. 1984). The new jobs credit is available to employers who satisfy certain requirements. ¹⁶

Sections 51 and 52 provide the methods of determining whether an employer is entitled to a credit and, if so, in what amount. 1984 Tax Ct. Memo LEXIS 35">*59 Under section 51(a)(1), an employer which paid unemployment insurance wages in 1977, in an amount that exceeded 102 percent of the unemployment insurance wages it had paid in 1976, was entitled to a new jobs credit equal to 50 percent of the excess, subject to certain limitations as provided in section 53. Section 51(f)(1) proovides further that the term "unemployment insurance wages" has the meaning given to the term "wages" by section 3306(b) (hereinafter called FUTA wages).

Pursuant to section 51(g)(1), in order for the employer to qualify for the new jobs credit more than one-half of the remuneration paid by the employer to the employee must be paid "for services performed in the United States in a trade or business of the employer."

In respondent's view, petitioners failed to establish that their specific employees were certified members of particular "targeted groups" as required in section 51(d). Therefore, respondent determined that petitioners were not entitled to claim the new jobs credit. We do not address respondent's argument.

In our view, petitioners Mr. and Mrs. Amis have failed to prove that the new jobs credit claimed in 1977 represents an increase1984 Tax Ct. Memo LEXIS 35">*60 in FUTA wages for 1977 over 102 percent of the FUTA wages for 1976. Section 51(a)(1). Petitioners have failed to establish that they paid any wages in 1977 for services performed in their trade or business. See section 51(g)(1). Therefore we hold that petitioners are not entitled to the new jobs credit of $108 claimed in 1977.

4. Deduction of Expenses.

On its corporate return for taxable years 1977 and 1978, petitioner, Amey and Monge, Inc., claimed deductions in the amount of $114,006.58 and $77,668.55, ¹⁷ respectively, for salaries and wages, repairs, rents, taxes, interest, contributions, depreciation, advertising and "other deductions."

Section 162(a) allows as a deduction all ordinary and necessary expenses in carrying on a trade or business. Petitioner has the burden to prove that it is entitled to such a deduction. The burden of clearly showing the right to a claimed deduction is on the taxpayer. Interstate Transit Lines v. Commissioner,319 U.S. 590">319 U.S. 590, 319 U.S. 590">593 (1943); Rule 142, Tax Court Rules1984 Tax Ct. Memo LEXIS 35">*61 of Practice and Procedure.

Respondent maintains that petitioner, Amey and Monge, Inc., has not met its burden of proof in this instance. As we have previously stated, the proof of any deductions other than those conceded by respondent is not precise, but the record is sufficient to show that Amey and Monge, Inc., is entitled to some business expense deductions other than the salaries and wages conceded by respondent. Based on the record as a whole and using our best judgment, we conclude that for 1977 Amey and Monge, Inc., is entitled to deduct in addition to the amounts conceded by respondent the following:

The evidence is even more sparse for 1978 than for 1977. However, based on the record and considering the items shown as deductible in 1977, we conclude that Amey and Monge, Inc., is entitled to the following deductions in addition to the*62 salaries conceded by respondent:

Decisions will be entered under Rule 155.