Jaques v. Commissioner
Xinzheng Lin
TX 8020
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Citation:
Jaques v. Commissioner, 935 F.2d 104 (1991), 67 AFTR
2d 91-1108, 91-1 USTC P 50292; aff’g TC Memo 1989673 (1989), PH TCM P 89673, 58 CCH TCM 1026.
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History: CA-6 and TC for government.
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Judge: Martin
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Facts:
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The taxpayer made withdrawals from his wholly
owned corporation to pay day-to-day personal living
expenses and these withdrawals were reflected as
“Account Receivable – officer” made on the books of
the corporation. The taxpayer did not execute notes for
these withdrawals nor was there a maturity date set for
repayment. There was no collateral pledged as security
for the repayment.
The taxpayer considered the withdrawals as loan which
is not taxable. The government treated the withdrawals
as constructive dividend but not loans.
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Issue:
Are withdrawals from taxpayer’s wholly owned
corporation to pay his personal expenses taxable
constructive dividends, not non-taxable loans?
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Holding:
Yes, the amounts withdrawn by taxpayer is not intended to
be loans, thus were taxable distribution under Section 316
of the Internal Revenue Code.
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Reasoning:
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Despite classification of withdrawals as loans by
taxpayer and corporation and taxpayer’s small,
sporadic repayments, taxpayer didn’t show intent to
repay at time withdrawals were made.
There was neither written loan agreement nor collateral
pledged.
There was no fixed schedule of repayment or attempt to
enforce repayment.
The corporation had substantial current earnings but
did not pay any dividends during this period.