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accounts. Davis included what he believed was income from the
First Citizens accounts.
OPINION
A. Overview
The primary issues for decision are whether Mr. and Mrs.
Reaves received constructive dividends from Reaves Livestock and
are liable for additions to tax for fraud, negligence, or
substantial understatement of tax for the years in issue, and
whether Reaves Livestock is liable for additions to tax for fraud
and substantial understatement of tax for the years in issue.
Petitioners concede that petitioners received cash dividends
from the checks which were payable to fictitious payees (e.g.,
John Chavis) and endorsed and cashed by Mrs. Reaves, but contend
that petitioners' underpayments of tax related to those checks
were not due to fraud. Petitioners concede that checks from the
First Citizens accounts used to buy personal items are
constructive dividends to them, but contend that petitioners'
underpayments of tax related to those checks were not due to
fraud. Petitioners contend that the proceeds of the 282 checks
payable to fictitious persons and cashed by Lawson are not
constructive dividends to Mr. and Mrs. Reaves and that
petitioners' underpayments of tax related to those checks were
not due to fraud.
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