Reaves Livestock, Inc., et al. - Page 35

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          Reaves because Mr. Reaves endorsed three of them, and the other             
          four are endorsed "S&J Farms" but no one signed them.  We                   
          disagree.  We have found that Mr. Reaves used the proceeds from             
          these checks to buy the livestock as noted on each check.                   
               7.   Conclusion                                                        
               We conclude that Mr. and Mrs. Reaves received constructive             
          dividends of $93,410 in 1984, $130,551 in 1985, $270,2007 in                
          1986, and $222,982 in 1987.                                                 
          C.   Mr. and Mrs. Reaves' Liability for Additions to Tax for                
               Fraud                                                                  
               1.   Background                                                        
               Respondent determined that Mr. and Mrs. Reaves are liable              
          for the addition to tax for fraud under section 6653(b) for 1984,           
          1985, 1986, 1987, and 1988.  For 1984 and 1985, if any part of a            
          tax underpayment is due to fraud, the addition to tax for fraud             
          under section 6653(b)(1) is 50 percent of the total underpayment            
          of tax, and the addition to tax under section 6653(b)(2) is 50              
          percent of the interest payable under section 6601, but only with           
          respect to that part of the underpayment that is due to fraud.              



               7 We have found that Mr. and Mrs. Reaves received                      
          constructive dividends of $306,345 in 1986.  Respondent                     
          determined that Mr. and Mrs. Reaves received constructive                   
          dividends of $270,200.  We hold that Mr. and Mrs. Reaves received           
          constructive dividends in the amount that respondent determined             
          for 1986.                                                                   







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