American Foundry, a Corporation v. Commissioner of Internal Revenue

Corporate and individual taxpayers appeal three Tax Court judgments which sustained deficiency determinations of the Commissioner. The Tax Court decisions are reported at 59 T.C. 231 (1972). We affirm in part and reverse in part.

Taxpayers are American Foundry, a close corporation; Dominic Meaglia, the corporation’s founder, a majority stockholder, and ex-president; and Katie Meaglia, Dominic’s wife.

American Foundry made payments to Dominic, or on his behalf, and to Dominic’s daughter, Jean Meaglia Shives, a minority stockholder and officer. The Commissioner treated the payments as constructive dividends which were neither deductible to the corporation nor excludable from the gross income of the individual taxpayers. The Tax Court found for the Commissioner on most of the claims.

The history of the corporation and its relationship to the Meaglia family is set forth in the Tax Court opinion. The full schedule of the contested payments also appears there. The only issues in this appeal involve: (1) An annual payment of $18,000 to Jean Meaglia Shives for tax years 1965-70. The Tax Court allowed for each year only $7,000 as “reasonable” compensation. (2) Annual payment of $23,082…