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B. Constructive Dividends From CFC
1. Cash Distributions to John Cordes
On March 16, 1994, CFC issued to John Cordes a check for
$800,000. On that same day, Mr. Cordes, or someone on his
behalf, endorsed the check for $800,000 over to CFC, and CFC
deposited the check in its own account. CFC recorded this
transaction as a liability in CFC’s account titled “Note
Payable--John J. Cordes” (John Cordes’s loan account).
During 1994, CFC issued 12 checks totaling $94,000 to John
Cordes. Each was charged to John Cordes’s loan account. John
Cordes returned to CFC $4,000 of the $94,000 received.7 During
1995, CFC issued 23 checks totaling $430,000 to John Cordes.
Each was charged to John Cordes’s loan account. Six of the 23
checks, totaling $180,000, were deposited in Mrs. Cordes’s
personal checking account.
John Cordes failed to report the $800,000 distribution or
any of the other payments as any type of income in 1994 or 1995.
He did, however, report $20,000 of interest income from CFC in
1995.
Also on March 16, 1994, John Cordes transferred to Mr.
Cordes legal title to 500 shares of stock in John Cordes, Inc.
This transaction was recorded in the “Minutes of Special Meeting
of Shareholders of John Cordes, Inc.”.
7The record does not disclose the circumstances regarding
John Cordes’s return of funds to CFC or the manner in which the
transaction was reported on CFC’s books. The circumstances are
not relevant in light of our holding.
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