4. Payments that produce current benefits to the shareholder-employees, result in capital gains or losses, do not have to be repaid, but are nondeductible by the corporation. Included here are stock redemptions not taxed as dividends and shareholder sales of property to the corporation.5. Payments that produce current, nontaxable benefits to the shareholder-employees, but which have to be repaid and are nondeductible to the corporation. Shareholder loans fall under this heading. Unless appropriate formalities are observed, dividend treatment may result.6. Payments that produce current, taxable benefits to the shareholder-employee and are nondeductible to the corporation. These payments are dividends and in the last place. (Chapter18discusses two penalty taxes that may be applicable if earnings are accumulated.)PLANNING POINTERAnnie Gall is the sole shareholder of Beach Blankets Inc. She wishes to give $20,000 to her favorite charity, Last Chance College. If she were to have Beach Blankets redeem some of her shares to raise the $20,000, Annie would have to report $20,000 in dividend income. Annie decides to give $20,000 of her stock in Beach Blankets to Last Chance College. Seeing that there is no market for the stock, Last Chance sells the stock to Beach Blanket for $20,000 of notes, payable over 10 years with interest. Here are the tax results:1. Annie receives a $20,000 charitable contribution deduction currently.2. Annie has no dividend income.3. Annie owns 100 percent of the corporation before and after the redemption.4. The corporation recognizes no gain or loss but reduces its E&P account by 50 percent.5. The corporation pays the $20,000 later but receives no deductions (except for interest).As long as the charity is not obligated to sell the stock, this is accepted by the courts and the IRS. D.D. Palmer, 75-2 USTC¶9726, 523 F.2d 1308 (CA-8 1975); Rev. Rul. 78-197, 1978-1 CB 83.TAX BLUNDERA businessman owned 100 percent of the stock in a corporation, directly or indirectly, using attribution rules. Needing a loan, he approached the Small Business Administration (SBA). His loan application was approved with one condition: He had to invest an additional $25,000 in the corporation. As a way of complying, he issued $25,000 of par value preferred stock and purchased the whole issue for $25,000 in cash. The SBA loan was granted, the business prospered, and eventually he no longer needed SBA support. At that time, he turned in his preferred stock to the corporation (which cancelled it) in exchange for $25,000. He reported no gain or loss on the transaction.