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Commissioner, T.C. Memo. 1994-358, affd. 90 F.3d 437 (10th Cir.
1996).
1. Withdrawal of Corporate Funds for Distribution to
Friends and Family
In 1992 and 1993, Mr. Cordes directed the withdrawal of
corporate funds from CFC and the payment of those funds to John
Cordes and Mrs. Cordes. It is well-settled that corporate
payments to children of its shareholders can constitute
constructive dividends to the shareholders when the payments are
made to satisfy personal parental objectives as opposed to the
bona fide business purposes of the corporation. Engg. Sales,
Inc. v. United States, 510 F.2d 565, 569-570 (5th Cir. 1975);
58th St. Plaza Theatre, Inc. v. Commissioner, 195 F.2d 724, 725
(2d Cir. 1952), affg. 16 T.C. 469 (1951); Frazier v.
Commissioner, supra.
Likewise, payments to family members can constitute
constructive dividends to the shareholders when the payments fail
to benefit the corporation. Cordes v. Commissioner, T.C. Memo.
1994-377 (in situation nearly identical to that before us, this
Court held corporate transfers to friends, wife, and children of
shareholder to be constructive dividend to shareholder, namely
Mr. Cordes, when shareholder failed to show corporate benefit or
expectation of repayment); Proctor v. Commissioner, T.C. Memo.
1981-436 (payments to shareholder’s mother, in excess of
compensation reasonable for services provided, constituted
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