- 35 -
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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