Franklin E. Erickson and Helen A. Erickson, Appellants-Petitioners v. Commissioner of Internal Revenue, Appellee-Respondent

Franklin E. and Helen A. Erickson (petitioner) appeal the decision of the Tax Court sustaining the Commissioner of Internal Revenue in his determination of deficiencies in petitioner’s returns for taxable years 1965 through 1968. Petitioner further contends that the Tax Court erred in excluding his testimony on the issue of whether the payment by petitioner’s wholly-owned corporation of certain entertainment expenses incurred by him resulted in constructive dividends.

I

In May 1962, petitioner and two associates obtained a long-term lease of a parcel of land with a building that was being operated as a drive-in restaurant. Petitioner renovated and expanded the building and renamed it the “Wayside Inn.” In 1963, petitioner took over the entire venture. On June 1, 1964, he sold his interest in the Wayside Inn to four corporations for $281,-941. Petitioner was the president and sole shareholder of each of these corporations. On that same date, he entered into a leaseback agreement with the corporations whereby he continued to operate the restaurant. This agreement called for the payment of a fixed annual rent and an equal annual apportionment of net profit and loss from the…