Donald R. Martin - Page 11

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                              of embezzlement.  The taxpayer's assertion is that the                                                                                       
                              loan amounts outstanding are due to the corporation and                                                                                      
                              not to him personally and therefore is not including                                                                                         
                              the balance due of $318,000 in his taxable income.                                                                                           
                              On his income tax return for 1991, petitioner attached a                                                                                     
                    disclosure statement which said:                                                                                                                       
                              2.        The taxpayer made unauthorized loans from                                                                                          
                              Activewear, Inc. in the amount of $958,880 less                                                                                              
                              repayments of $832,786 = $126,094 balance due.  The                                                                                          
                              corporation is pursuing the taxpayer with charges of                                                                                         
                              embezzlement.  The taxpayer's assertion is that the                                                                                          
                              loan amounts outstanding are due to the corporation and                                                                                      
                              not to him personally and therefore he is not including                                                                                      
                              the balance due of $126,094 in taxable income.                                                                                               
                              Respondent determined that the $318,000 in 1990 and $126,094                                                                                 
                    in 1991 was income to petitioner.  Respondent also determined                                                                                          
                    that petitioner filed his 1990 income tax return late.                                                                                                 
                                                                              OPINION                                                                                      
                    A.        Positions of the Parties                                                                                                                     
                              Respondent contends that petitioner misappropriated funds by                                                                                 
                    writing unauthorized checks from Activewear to Jackson's                                                                                               
                    corporations in 1990 and 1991.  Alternatively, respondent                                                                                              
                    contends that the unpaid balances were constructive dividends                                                                                          
                    paid by Activewear to petitioner.  Thus, respondent contends that                                                                                      
                    the unpaid loan balances of $318,000 in 1990 and $126,094 in 1991                                                                                      
                    to Jackson's corporations are income to petitioner.  Respondent                                                                                        
                    also contends that the security interests Jackson gave to                                                                                              
                    petitioner for the Activewear loans were income to petitioner.                                                                                         
                              Petitioner contends that the unpaid amounts were not income                                                                                  
                    to him because the transfers were bona fide business loans from                                                                                        



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