- 29 -
We conclude that the proceeds of the 282 checks are
constructive dividends to Mr. and Mrs. Reaves.6
2. Two Circle S Livestock, Inc. Checks
Mr. Reaves endorsed and cashed two Circle S checks dated May
1, 1987, payable to Marlboro Farms for $3,164 and $2,554. Mr.
Reaves testified that he used the cash from these checks to buy
livestock. Respondent offered no contrary evidence. We may not
arbitrarily disregard testimony that is competent, relevant, and
uncontradicted. Conti v. Commissioner, 39 F.3d 658, 664 (6th
Cir. 1994), affg. 99 T.C. 370 (1992) and T.C. Memo. 1992-616;
Demkowicz v. Commissioner, 551 F.2d 929, 931-932 (3d Cir. 1977),
revg. T.C. Memo. 1975-278; Banks v. Commissioner, 322 F.2d 530,
537 (8th Cir. 1963), affg. in part and remanding in part T.C.
Memo. 1961-237. We conclude that the two Circle S checks are not
constructive dividends to Mr. and Mrs. Reaves.
3. The Lumberton Auction Co. Checks
Respondent contends that the 13 checks from Lumberton
Auction, all of which were cashed, were constructive dividends to
Mr. and Mrs. Reaves. We disagree, except for one check payable
to Mr. Reaves.
6 Because we conclude that Mr. Reaves' testimony is
unreasonable, we reject petitioners' contention that they may
meet a lesser burden of proof by reasonably denying receiving
unreported income.
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