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genuine issues of material fact herein.
Mr. Daimler and Ms. Mondragon were the sole stockholders of
Dieter Electronics, an electronics repair business that had been
operating in Wichita Falls, Texas, since 1982.
Mr. Daimler and Ms. Mondragon filed a joint U.S. Individual
Income Tax Return (joint return), Form 1040, for each of the
years 1989 through 1992. The Company filed a U.S. Corporation
Short-Form Income Tax Return, Form 1120-A, for each of its
taxable years ended January 31, 1990, January 31, 1991, and
January 31, 1992. It filed a U.S. Corporation Income Tax Return,
Form 1120, for its taxable year ended January 31, 1993. (We
shall refer collectively to the Forms 1120-A and Form 1120 filed
by the Company as corporate returns.)
During 1989 through 1992, petitioners diverted substantial
funds from Dieter Electronics, deposited those funds into their
personal accounts, and used them personally (income diversion
scheme). Throughout those years, as part of the income diversion
scheme, Mr. Daimler diverted all the checks submitted to Dieter
Electronics as corporate income on which the “payee” section of
the check was left blank (diverted corporate checks) and stamped
his own name (D.G. Mondragon) in that section of those checks.
Throughout those same years, and also as part of the income
diversion scheme, Mr. Daimler removed all the cash that Dieter
Electronics received as corporate income (diverted corporate
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