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transaction was recorded in the “Minutes of Special Meeting of
Shareholders of Edmund Cordes, Inc.”
3. Cash Distributions to Mrs. Cordes
During 1994, CFC issued 18 checks totaling $484,651 to Mrs.
Cordes. During 1995, CFC issued five checks totaling $120,000 to
Mrs. Cordes. Those checks were deposited into Mrs. Cordes’s
personal checking account in the year in which they were issued.
Additionally, the six checks totaling $180,000 charged to John
Cordes’s loan account and the four checks totaling $100,000
charged to Jean Ann Richard’s loan account were also deposited in
Mrs. Cordes’s personal checking account in 1995.
In each of 1994 and 1995, one of the checks issued to Mrs.
Cordes was in the amount of $20,000, and each year CFC deducted
those $20,000 payments as interest expenses, and Mrs. Cordes
reported the payments as interest income. The remainder of the
checks issued to Mrs. Cordes were charged to account No. 312, a
shareholder loan account in the Cordeses’ name.
4. Bargain Sale of Notes
In the years at issue, CFC was in the trade or business of
financing auto purchases. Each note CFC issued to a purchaser
was recorded on a ledger card and, eventually, in a computer. As
CFC received each payment on a note, CFC recorded that payment on
the ledger card and issued a receipt to the borrower.
During 1994, Mr. Cordes used $200,000 of his own money to
“pay off” a number of CFC’s outstanding notes. Mr. Cordes and
CFC applied that $200,000 to the selected notes in a manner
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Last modified: May 25, 2011