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Petitioner husband argued that he could not command his
mother and sisters to do as he wished. Although petitioner
husband may not be close to his sisters, as he contends, there is
no evidence of family discord or that his sisters participated in
decision-making at Shin. Henry intended for Shin to remain a
family business, and petitioner husband was the only child of
Henry that was involved in Shin's operations.
Petitioner husband controlled both corporate petitioner
Eastimpex and Shin and used the two-tier payment system to skim
profits from Eastimpex. The majority of the deposited amounts
were then dispersed to or for the benefit of petitioner husband's
mother, Lily, who never repaid Shin. Petitioner husband used the
two-tier payment system to reduce Eastimpex's income tax by
claiming the deposited amounts as costs. At the same time,
petitioner husband reduced Shin's Taiwanese income tax by not
recording the deposited amounts as income on Shin's books and
eliminating any possible evidence that the payments could be
treated as income to Shin. As a result, Shin, with petitioner
husband's help, was able to avoid reporting the deposits as
income to the Taiwanese Government. We find that Eastimpex did
not make the deposits as payments for the cost of goods sold.
Thus, Eastimpex cannot treat the deposited amounts as part of the
cost of goods sold.
Constructive Dividends
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