George Georgiou and Judith Georgiou A.K.A. Judy Georgiou, et al. - Page 34

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                  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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