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When the IRS audited Winter Corporations current year tax return, the IRS disallowed $10,000 of travel and entertainment expenses incurred by Charles, an officer-shareholder, because of inadequate documentation. The IRS asserted that the $10,000 expenditure was a constructive dividend to Charles, who maintained that the expense was business related. Charles argued that he derived no personal benefit from the expenditure and therefore received no constructive dividend. Prepare a memorandum for your tax manager explaining whether the IRSs assertion or Charless assertion is correct. Your manager has suggested that, at a minimum, you consult the following resources:

• IRC Secs. 162 and 274

• Reg. Secs. 1.274-1 and -2