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A sole shareholder receives a constructive dividend to the
extent of the corporation's earnings and profits5 if the
corporation pays a personal expense of its shareholder, or lets
the shareholder use corporate property for a personal purpose.
Secs. 301, 316; Falsetti v. Commissioner, 85 T.C. 332, 356-357
(1985); Henry Schwartz Corp. v. Commissioner, 60 T.C. 728, 744
(1973). Whether a shareholder receives a constructive dividend
is a question of fact. Hagaman v. Commissioner, 958 F.2d 684,
690-691 (6th Cir. 1992), affg. and remanding T.C. Memo. 1987-549;
Loftin & Woodard, Inc. v. United States, 577 F.2d 1206, 1214-1215
(5th Cir. 1978).
1. The 282 Checks Payable to Fictitious Persons
Petitioners contend that the proceeds from the 282 checks
are not constructive dividends to Mr. and Mrs. Reaves because
Lawson embezzled them. Mr. Reaves testified that Lawson
embezzled the cash. Lawson testified that he gave the cash from
the 282 checks to Mr. Reaves. Mr. Reaves' testimony on this
point was not credible for reasons stated next.
We give more weight to the objective facts than to the
testimony about the 282 checks. The objective facts show that
5 Petitioners do not contend that Reaves Livestock lacked
enough earnings and profits to pay the constructive dividends at
issue in this case.
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