(caption unavailable)

* Local Rule 47.5.1 provides: "The publication of opinions that have no
precedential value and merely decide particular cases on the basis of well-
settled principles of law imposes needless expense on the public and burdens on
the legal profession." Pursuant to that rule, the court has determined that this
opinion should not be published.
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 94-40562
_______________
EDUARDO CEPEDA and MARTHA I. CEPEDA,
Petitioners-Appellants,
VERSUS
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
EDUARDO CEPEDA, M.D., P.A.,
Petitioner-Appellant,
VERSUS
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
_________________________
Appeal from the United States Tax Court
(298-92-299, 92)
_________________________
(May 17, 1995)
Before HIGGINBOTHAM, SMITH, and STEWART, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*

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I.
Eduardo Cepeda, M.D., created Eduardo Cepeda M.D., P.A. ("PA"
or "the corporation"), in 1980. He was its sole shareholder and
president. Before 1988, PA advanced the doctor $161,479 for
personal purposes, maintaining a "due from stockholders account"
reflecting these advances. No other documents memorialized these
advances as loans or set forth any interest rate or repayment plan.
In late 1987, Dr. and Mrs. Cepeda filed for bankruptcy under
Chapter 7. Subsequently, they listed PA as an unsecured creditor
in their Statement of Financial Affairs. On January 1, 1988, PA
wrote off the $161,479 balance as a bad debt, deducting this amount
on its corporate tax return. On February 29, 1988, the bankruptcy
court discharged the Cepedas from all dischargeable debts.
In 1988, PA advanced another $95,101 in payments to the
doctor. Of this, $43,461 was paid to the bankruptcy trustee for
the Cepedas to repurchase PA's stock pursuant to the bankruptcy
court's October 1998 authorization.
PA did not declare dividends for any of the relevant years.
The Cepedas did not formally "repay" any of the funds advanced to
them by the corporation, but they did deposit into the corporate
account various checks made out to the order of the doctor from an
unrelated investment.
II.
In 1991, the Commissioner issued a notice of deficiency for
1988, based upon receipt of $91,423 in unreported constructive

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dividends. The doctor sought redetermination of the deficiency in
the Tax Court, arguing that the $91,423 had been a loan. The
Commissioner then amended her answer to assert, in the alternative,
that the funds were unreported compensation to the doctor. In
response to this amended answer, PA amended its petition to claim
a business expense deduction for the funds.
The Tax Court found that the $91,423 was composed of construc-
tive dividends rather than loans. The court refused to address the
Commissioner's argument that the funds were employee compensation,
stating that no evidence had been introduced in support of this
issue. The doctor moved for reconsideration, arguing that under
the internal revenue regulations and the Bankruptcy Code, he could
not receive a constructive dividend while in bankruptcy, as the
bankruptcy estate was the shareholder of PA.
The Tax Court denied this motion. In its supplemental
opinion, it conceded that the bankruptcy estate))rather than the
doctor himself))had been the legal owner of PA's stock at the time
of the payments. The court, however, relied upon the benefits
flowing to the doctor in his personal capacity to find a construc-
tive dividend under a "beneficial ownership" theory. In the
alternative, the court rested its decision upon the "substance over
form" doctrine. After a detailed discussion of each of these bases
for its decision, the court concluded its opinion with a footnote
stating that "[e]ven if we concluded that petitioner was not a
shareholder under either espoused theory, the advances were,
nevertheless, an accession to petitioner's wealth and, thus, would

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be income under the general principles of [26 U.S.C. §] 61."
III.
A.
A distribution from a corporation to a taxpayer is not
considered a dividend unless it is paid to the taxpayer in his
capacity as a shareholder. 26 C.F.R. § 1.301-1(c). The commence-
ment of a bankruptcy case under chapter 7 creates an estate that
consists of all legal or equitable interests in the debtor's
property. 11 U.S.C. § 541. Accordingly, at the commencement of
the Cepeda's bankruptcy case on November 23, 1987, ownership of PA
passed to the bankruptcy estate, and the trustee had legal title of
the shares. The trustee, as representative of the estate, retained
title until he sold the stock to Dr. Cepeda on October 21, 1988.
The Commissioner argues that Dr. Cepeda should be held to have
received a constructive dividend, even though he was not legally a
shareholder during the pendency of the bankruptcy case. To support
this argument, the Commissioner cites a number of cases holding
taxpayers responsible for constructive dividends where they enjoyed
"beneficial ownership" of the stock.
B.
We need not decide whether the Tax Court erred on this issue,
as we address instead the Tax Court's alternative holding that the
corporate advances are taxable as income to Dr. Cepeda under the
general principles of 26 U.S.C. § 61, as an accession to wealth.

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As a threshold matter, we must determine whether this issue is
properly before us. Dr. Cepeda argues that the Tax Court improp-
erly relied upon § 61(a), as that ground was not asserted in the
Commissioner's notice of deficiency, and cites Baird v. Commis-
sioner, 438 F.2d 490 (3d Cir. 1970), and Evans v. Commissioner, 63
T.C.M. (CCH) 3001 (1992).
In Baird, the court vacated and remanded where the Tax Court
had relied upon a broad theory of unreported income although the
Commissioner's theory at trial had been much narrower. Based upon
its reading of the trial transcript, the court reasoned that the
taxpayer had not been on notice that a broader theory of liability
was being pursued. "We say this," the court continued, "because it
would be patently unfair to decide this case on a theory of which
tax payer was unaware and thus did not have an opportunity to meet
at the evidentiary stage." Baird, 438 F.2d 490, 493 (3d Cir.
1970).
Unlike the taxpayer in Baird, Dr. Cepeda was not prejudiced by
any surprise in proof. In fact, he stipulated that the corporation
had advanced the funds in question to him or on his behalf. In
light of this stipulation, which practically concedes the heart of
the accession-to-wealth issue, and in light of the fact that the
payments were characterized at various stages of this litigation as
loans, constructive dividends, and unreported employee compensa-
tion, we find that Dr. Cepeda had adequate notice of the § 61(a)
accession-to-wealth argument.
Nor can there be any doubt that the advances constituted an

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accession to wealth within the meaning of § 61(a). A large portion
of the payments went to the bankruptcy trustee, as payment for the
sale of shares of the corporation's stock back to Dr. Cepeda. The
remainder went to various businesses))none of which was a creditor
of Dr. Cepeda's whose accounts receivable had been discharged in
bankruptcy. And, of course, Dr. Cepeda stipulated that all of
these payments were made to him or on his behalf.
Accordingly, the judgment of the Tax Court is AFFIRMED on the
alternative § 61(a) ground.

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