- 34 -
On brief, Georgiou asserts that his annual income of
$1 million is evidence of his ability to repay the debt. This
assertion contradicts Georgiou's Form 1040 tax returns for 1989
and 1990 that report adjusted gross income of $218,281 and
$283,987, respectively. Where a sole shareholder receives no
salary from a corporation, other disbursements, represented as
"loans", may in reality constitute salary substitutes. Receipt
of salaries denominated as such, on the other hand, may support
the characterization of other disbursements as loans. See Baird
v. Commissioner, T.C. Memo. 1982-220. Although Georgiou received
a salary from Kolonaki, he testified that the salary was very
low. The low salary would have been Georgiou's only remuneration
from Kolonaki, because Kolonaki never paid dividends, despite
substantial earnings and profits in both 1989 and 1990. A
history of failure to pay dividends in the face of earnings and
profits available for that purpose tends to show that "loans" are
camouflaged dividends. Id.
Georgiou's final argument, i.e., that the advances were
loans because there were ceilings placed on the amount of the
advances, is unpersuasive. The line of credit that Kolonaki
extended to Georgiou increased approximately every 2 years. It
was Georgiou, as the sole shareholder of Kolonaki, who had the
authority to increase the line of credit. Similarly, it was
Georgiou, as the sole shareholder, who had the authority to
enforce the obligations. Courts strictly scrutinize transactions
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