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Bower (Jaime D. Patton’s then-fianc�) (collectively, the Bowers)
executed a 30-year note payable to CFC (the Bower Note). The
Bower Note, secured by the Bowers’ personal residence, had a face
value of $80,000 and bore an 11.62-percent market rate of
interest. The total amount of interest due under the Bower Note
was $208,000.
In 1987, Joseph P. Richard,11 Jean Ann Richard’s husband,
executed a 15-year note payable to CFC (the Richard Note). The
Richard Note, secured by real estate jointly owned by the
Richards, had a face value of $555,000 and bore a 10.1-percent
market rate of interest. The total amount of interest due under
the Richard Note was $525,000.
Both the Bowers and the Richards made payments on their
notes.12 On March 25, 1991, the Bowers still owed $243,200 in
principal and interest, and the Richards still owed $813,000 in
principal and interest. On March 25, 1991, Mr. Cordes purchased
from CFC the Bower Note for $35,200 and the Richard Note for
$288,000.
At issue is whether, and to what extent, Mrs. Cordes has
taxable income from constructive dividends stemming from Mr.
11The petitioners stipulated that whether Jean Ann Richard
executed the Richard Note is at issue. In light of our holding,
infra, we need not decide that issue.
12Although the parties stipulated that the payments were
timely, many of the payments were, in fact, made late.
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