Don A. Chan and Cecilia Chan - Page 13
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US Tax Court > 1997 > Don A. Chan and Cecilia Chan - Page 13
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Individual petitioners contend that Shin lent the deposited
amounts to its shareholders. Once Shin was repaid, it used the
money to pay farmers and workers in cash. Shin does not have
receipts for these payments. We do not accept petitioners'
elaborate explanation of Shin's lending practices. Rather, we
find that petitioner husband controlled both Shin and Eastimpex
and used the alleged payments to Shin as a way to give money to
his mother. Lily received substantial distributions from the
accounts and held the account passbooks although she owned a very
small percentage of Shin. There is no evidence that Lily repaid
Shin for these alleged loans or that Shin made withdrawals for
business purposes from the Coast and First Pacific accounts.
These factors indicate that the subject accounts were created for
the personal purposes of individual petitioners and not created
for business purposes of Shin. The admittedly deceptive
recordkeeping was used in part to benefit individual petitioners.
Respondent determined that the deposited amounts were not
paid to Shin for the purchase of goods and thus disallowed their
treatment by Eastimpex as the cost of goods sold. Respondent
further determined that the deposited amounts constituted
constructive dividends from Eastimpex to individual petitioners.
Cost of Goods Sold
The first issue we consider is whether Eastimpex is entitled
to treat the deposited amounts as part of its cost of goods sold.
The cost of goods purchased for resale in a taxpayer's business
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