Although respondent did not assert that the Proctors received constructive dividends in 1974 because that year was not in issue with respect to the Proctors, we are not barred from finding that the disallowed expenses were pro-rata dividends constructively received by each of the Proctors for purposes of the AET calculation and that Chattanooga Products was entitled to a dividends paid deduction equal to the amount of such dividends. See, e.g., Sebago Lumber Co.v. Commissioner Dec. 21,931, 26 T.C. 1070, 1074 (1956); Wilson v. Commissioner Dec. 16,241, 10 T.C. 251, 260 (1948), affd. sub nom. Wilson Bros. & Co.v. Commissioner 48-2 USTC ¶ 9399, 170 F. 2d 423 (9th Cir. 1948), cert. denied 336 U.S. 909 (1949); Deviney Construction Co., Inc. v. Commissioner Dec. 34,337(M), T.C. Memo. 1977-92 See n. 21 for the calculation of the amount.
The fact that a shareholder owns most or all of the corporation's stock does not justify his disregarding its separate existence so long as it serves a business purpose of engages in business, i.e., is not a mere sham. E.g., Ernest H. Weigman, 47 T.C. 596 (1967), affirmed per curiam 400 F.2d 584 (C.A. 9, 1968); Sebago Lumber Co., 26 T.C. 1070 (1956). Nor must the degree of business activity be great:
Kurt has been the only stockholder of petitioner from the date of incorporation through and including the years in issue. Accordingly, there can be no question that the stock ownership test has been met. Cf. Sebago Lumber Co., 26 T.C. 1070 (1956). Nor does petitioner argue that it qualifies under one of the exceptions to the definition of a personal holding company.
The supervision of the farming operation was done by petitioner, but corporate entity is not to be disregarded because an officer of that corporation, in his capacity of officer, conducts the corporate business. Cf. Sebago lumber Co., 26 T.C. 1070 (1956). Both Rancho and Black Land maintained bank accounts, employed laborers, had some permanent employees, negotiated loans with respect to farming the properties, kept books and records, and held stockholders and directors meetings.
The addition to tax for that return falls, in consequence of our determination (Issue 4, supra) that petitioner was not a personal holding company for that year. Sebago Lumber Co., 26 T.C. 1070 (1956).