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White Corporation, a newly formed corporation, acquired the assets of Gray Corporation. As part of...

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Accounting

White Corporation, a newly formed corporation, acquired the assets of Gray Corporation. As part of the consideration, White issued debentures in the amount of $1,000,000 to the sellers of Gray Corporation. The debentures were guaranteed by Whites major shareholder, Susan. In 2006, White had substantial profits and paid interest of $150,000 on the debentures plus a principal payment of $100,000. The IRS contends that the interest is not deductible by White Corporation and the entire payment of $250,000 is a constructive dividend to Susan?

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