                        T.C. Memo. 2004-63



                      UNITED STATES TAX COURT



         STEPHEN M. AND REBECCA A. KERNS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12728-02.            Filed March 11, 2004.


     Charles Wist and Joan Kehlhof, for petitioners.

     John D. Faucher, for respondent.



                        MEMORANDUM OPINION


     COLVIN, Judge:   Respondent determined that petitioners are

liable for deficiencies in Federal income tax of $3,357 for 1998

and $3,637 for 1999, and accuracy-related penalties under section

6662(a) of $671 for 1998 and $727 for 1999.

     After concessions, the sole issue for decision is whether a

$7,800 payment by petitioner Stephen M. Kerns’s wholly owned
                                   - 2 -

corporation in 1999 for a permanent seat license allowing him to

buy six season tickets to Houston Texans football games was a

constructive dividend to petitioners.      We hold that it was.

       References to petitioner are to Stephen M. Kerns.    Section

references are to the Internal Revenue Code in effect for the

years in issue.    Rule references are to the Tax Court Rules of

Practice and Procedure.

                              Background

       The parties submitted this case fully stipulated under Rule

122.

A.     Petitioners and InsurMark

       Petitioners resided in Houston, Texas, when they filed their

petition.

       In 1998 and 1999, petitioners owned 100 percent of the stock

of InsurMark, Inc., a corporation which sells annuities to

insurance and financial agents.      Petitioner was the president and

chief executive officer of InsurMark, Inc., in 1998 and 1999 and

is currently its president.

B.     The Permanent Seat License

       On December 31, 1999, petitioner submitted an application to

the Harris County-Houston Sports Authority for a permanent seat

license under which petitioner had the right to buy six season
                                 - 3 -

tickets for all home games of the Houston Texans football team1

to be played in the new football stadium (now called Reliant

Stadium) that was then under construction in Houston, Texas.

Petitioner listed his home address and Social Security number on

the application.   InsurMark paid $7,800 with the application but

did not deduct this payment on its 1999 corporate income tax

return.

     On May 23, 2000, petitioner signed a Harris County Stadium

permanent seat license agreement, under which the permanent seat

license fee was payable in three installments of $7,800, totaling

$23,400.   Petitioner signed the agreement as “president” but did

not specify the entity of which he was president.    Petitioner had

the exclusive right to use the seat license.    He could not

transfer the license before the end of May 2003 without the

consent of the Harris County-Houston Sports Authority, other than

to an immediate family member.    Petitioner indicated in the

agreement that he was not acquiring the license as an investment

and that he intended to use the license himself, and not to

distribute it or season tickets to others.

     InsurMark also paid $7,800 for the permanent seat license in

the year ending December 31, 2000, and $7,800 in the year ending

December 31, 2001, for a total of $23,400 by the end of 2001.



     1
       The Houston Texans are a member of the National Football
League (NFL).
                                - 4 -

     The Houston Texans football team played its first regular

season home game at Reliant Stadium on August 24, 2002.

     On April 4, 2003, after the petition was filed in this case,

petitioner asked the Harris County-Houston Sports Authority to

transfer his permanent seat license to InsurMark.

C.   Petitioners’ Returns and Respondent’s Determination

     Petitioners filed Federal income tax returns for 1998 and

1999.    Respondent determined that petitioners had unreported

income of $8,229 for 1998 and $8,916 for 1999, in the form of

constructive dividends from InsurMark for its payment of their

personal expenses.

                             Discussion

     Petitioners contend that Insurmark’s purchase of the

permanent seat license was not a constructive dividend to them in

1999.    They contend that the license conferred no benefit on them

(and thus they received no constructive dividend) in 1999 because

the Houston Texans football team (and Reliant Stadium) did not

exist in 1999.    Petitioners point out that InsurMark did not

deduct its $7,800 payment for the permanent seat license in 1999

and contend that a property right for which their corporation

claimed no deduction and which can be used only in the future

does not result in a constructive dividend to them in 1999.2


     2
       We need not decide whether the burden of proof shifts to
respondent under sec. 7491(a) because the facts are not in
dispute and the issue is one of law. See sec. 7491(a).
                                - 5 -

     We disagree.   A shareholder receives a constructive dividend

to the extent of the corporation’s earnings and profits if the

corporation pays a personal expense of its shareholder or the

shareholder uses corporate property for a personal purpose.3

Secs. 301(c), 316(a); Falsetti v. Commissioner, 85 T.C. 332,

356-357 (1985); Henry Schwartz Corp. v. Commissioner, 60 T.C.

728, 743-744 (1973).   If the earnings and profits requirement is

met, a payment is a constructive dividend if the corporation has

conferred an economic benefit on the shareholder without

expectation of repayment.    United States v. Smith, 418 F.2d 589,

593 (5th Cir. 1969); Truesdell v. Commissioner, 89 T.C. 1280,

1295 (1987).   Petitioners economically benefited from InsurMark’s

payment of the seat license fee in 1999 because they acquired,

without cost to themselves, the permanent seat license.    The fact

that the football team and the stadium did not exist in 1999 did

not prevent the seat license from conferring an economic benefit

on petitioners; i.e., the right to buy season tickets when the

Houston Texans began playing football games.

     Petitioner, not InsurMark, had the exclusive right to use

the seat license.   The permanent seat license agreement was

between the Harris County-Houston Sports Authority and

petitioner.    He could not transfer the license, other than to an


     3
       Petitioners do not contend that InsurMark’s earnings and
profits were less than the amount of constructive dividends
respondent determined.
                              - 6 -

immediate family member, before the end of May 2003 without the

consent of the Harris County-Houston Sports Authority.   In the

license agreement, petitioner agreed to use the license himself,

rather than to distribute it or the season tickets to others.

Because petitioner held title to the seat license until 2003,

InsurMark did not benefit from the license in 1999.4

     We conclude that InsurMark’s $7,800 payment in 1999 for the

permanent seat license was a constructive dividend to

petitioners.

                                             Decision will be

                                        entered for respondent.




     4
       Petitioners do not contend, and we do not find, that the
primary benefit of the permanent seat license ran to InsurMark
rather than to them. Cf. Hood v. Commissioner, 115 T.C. 172, 180
(2000).
