- 38 -
of the board of directors, and corporate tax returns supports
this contention. While consistent treatment on the books of the
corporation is a factor to be considered, "book entries and
records may not be used to conceal a situation which is not in
economic reality what it is made to appear." Williams v.
Commissioner, T.C. Memo. 1978-306, affd. 627 F.2d 1032 (10th Cir.
1980).
In conclusion, we find that the amounts expended by EIC for
the benefit of the Wangs constitute constructive dividends. The
purported loans originated because EIC paid personal expenses of
the Wangs and charged the payments to the shareholder loan
account. It is apparent the petitioners used the loan accounts
to transfer money freely between EIC and the Wangs and, in
effect, permitted the Wangs to use EIC as their personal checking
account. The nature of the payments are further evidence that
these transfers were not bona fide loans to the shareholder but
rather were dividends fully taxable under sections 301 and 316.
See Dolese v. United States, supra at 1154 (noting that the
"timing and the pattern" of advances to the shareholder "cannot
be ignored"). Accordingly, we sustain respondent's determin-
ation.
Issue 4. Accuracy Related Penalties
Section 6662(a) imposes a penalty in an amount equal to 20
percent of the portion of the underpayment of tax attributable to
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