- 11 -
directly related to those notes’ outstanding balances. CFC then
treated each of those notes as satisfied on its books and erased
records of those notes from its computer. CFC also removed the
ledger cards from its records, and Mr. Cordes added those
records, or had them added, to his own filing system. Thereafter
all of the borrowers’ payments on the “paid off” notes were paid
or delivered ultimately to Mr. Cordes. Mr. Cordes issued
receipts to the borrowers.9
Mr. Cordes accumulated the payments he received on those
notes and used them to “pay off” a number of CFC’s remaining
outstanding notes. Throughout 1994 and 1995, Mr. Cordes “paid
off” 1,168 of CFC’s notes in this fashion, 584 in each year (the
1994 notes and the 1995 notes, respectively).
At the time the 1994 notes were removed from CFC’s books,
they were worth $3,340,313. In exchange for those 1994 notes,
Mr. Cordes paid CFC $1,600,700, and CFC deducted the balance,
$1,733,608, as a bad debt for 1994. Respondent determined the
difference between the 1994 notes’ values and the prices Mr.
Cordes paid for them constituted a constructive dividend to CFC’s
shareholder(s).10
9Some CFC employees assisted Mr. Cordes in collecting the
payments and issuing the receipts. In many cases, the borrowers
were not aware that Mr. Cordes now held those notes.
10The parties stipulated that the difference between the
value of the 1994 notes and the amount Mr. Cordes transferred in
exchange for the 1994 notes was $1,733,608. The difference
between the 1994 notes’ values and the prices Mr. Cordes paid for
them, however, is $1,739,614, according to the values the parties
(continued...)
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