- 41 -
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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