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Taxable Year Date of Transfer Details of Transfer
1987 Jan. 7, 1987 100 shares of John
Cordes, Inc., to John
Cordes
1991 Aug. 20, 1991 1,000 shares of Edmund
Cordes, Inc., to Jean Ann
Richard
1994 Jan. 14, 1994 334 shares of CFC to Eddy
Ben Cordes
OPINION
I. Income Tax Cases
The five sets of transactions at issue in the income tax
cases are similar in nature in that respondent determined they
each give rise to constructive dividends to the shareholder-
taxpayer(s). The first transactions, involving the excessive
interest paid by CFC to Mr. Cordes, however, are of a slightly
different nature in that our decision involves a reallocation of
income and deduction under section 482. For that reason, we
initially and separately consider the section 482 reallocation,
and we then decide whether the five sets of transactions result
in constructive dividends to petitioners.
A. Loan Interest Allocation
Respondent determined that CFC transferred to Mr. Cordes
amounts in excess of those that can reasonably be characterized
as interest on the two $200,000 loans and the $80,000 loan
(collectively, the three loans). Respondent reallocated CFC’s
and the Cordeses’ income and deductions pursuant to his authority
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