Reaves Livestock, Inc., et al. - Page 41

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          Mr. and Mrs. Reaves should have told Davis about the First                  
          Citizen accounts and the 282 checks, or instructed Lawson and               
          Wright to do so.  Instead, Mr. Reaves concealed these items from            
          Davis.  He left no record showing how the proceeds from the 282             
          checks were used.  He opened the First Citizens accounts without            
          including them as a part of Reaves Livestock's records.                     
               Petitioners contend that Wright and Lawson should have told            
          Davis about the John Chavis checks.  We disagree.  Wright and               
          Lawson were not responsible for telling Davis how much income Mr.           
          and Mrs. Reaves had.                                                        
               This badge of fraud applies to Mr. and Mrs. Reaves for 1984,           
          1985, 1986, and 1987, because they concealed income from Davis in           
          each of those years.                                                        
                    f.   Diversion of Corporate Income for Personal Use               
               A taxpayer's diversion of corporate funds to his own use is            
          evidence of fraud.  Solomon v. Commissioner, 732 F.2d 1459, 1460-           
          1461 (6th Cir. 1984), affg. T.C. Memo. 1982-603; United States v.           
          Brill, 270 F.2d 525, 527 (3d Cir. 1959).  Mr. Reaves diverted               
          Reaves Livestock income to himself and Mrs. Reaves through the              
          First Citizens accounts and through the 282 checks.  Mrs. Reaves            
          knew that she was receiving corporate income through the John               
          Chavis checks.  Mr. and Mrs. Reaves did not report their diverted           
          income.  This badge of fraud applies to Mr. and Mrs. Reaves for             








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