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safe. Petitioner deposited the Bijou's cash receipts; however,
petitioner sometimes deposited only one-half of those cash
receipts.
Petitioner routinely was seen making personal purchases with
large sums of cash. Petitioner was even seen making some
personal purchases with cash removed from a duffle bag in
envelopes resembling the drop envelopes used by the Bijou.
Petitioner also routinely sent large sums of cash and money
orders to the Screening Room in order to pay that business's
weekly expenses. Before its remodeling in 1982, the Screening
Room did not generate enough income to cover its expenses.
Furthermore, in his plea agreement, petitioner admitted that
his unreported income in 1980 was from skimmed cash receipts of
the Bijou.
From the entire record, we conclude that petitioner
routinely took cash from the Bijou's drop safe in 1980, 1981, and
1982 for his own personal use and to pay for the Screening Room's
expenses.
Generally, where a shareholder diverts corporate funds to
his own use, those funds constitute constructive dividends to him
and are ordinary income to the extent of the corporation's
earnings and profits. See secs. 301(c), 316; Truesdell v.
Commissioner, 89 T.C. 1280, 1295 (1987).
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