- 12 -
At the time the 1995 notes were removed from CFC’s books,
they were worth $5,218,828. In exchange for those 1995 notes,
Mr. Cordes paid CFC $4,139,512, and CFC deducted the balance,
$1,073,608,11 as a bad debt for 1995. Respondent determined the
difference between the 1995 notes’ values and the prices Mr.
Cordes paid for them constituted a constructive dividend to CFC’s
shareholder(s).
In 1997, CFC executed a Form CG-4549, Income Tax Examination
Changes, in which it conceded that the bad debt deductions it
claimed in 1994 and 1995 with respect to the 1994 and 1995 notes
described above were false, fraudulent, and not allowable.
The parties stipulated that the 1994 notes and the 1995
notes accumulated $138,409 and $448,164, respectively, in
interest from the dates Mr. Cordes “paid them off”. Neither CFC
nor Mr. Cordes reported that interest income on their returns for
those years. The Cordeses did not provide their accountant, Mr.
10(...continued)
assigned to those items. We are unable to discover the source or
rationale for this discrepancy, but we nevertheless treat
$1,733,608 as the amount at issue, in accordance with
respondent’s determination and the parties’ stipulation.
11The parties stipulated that the difference between the
value of the 1995 notes and the amount Mr. Cordes transferred in
exchange for the 1995 notes was $1,073,608. The difference
between the 1995 notes’ values and the prices Mr. Cordes paid for
them, however, is $1,079,317, according to the values the parties
assigned to those items. We are unable to discover the source or
rationale for this discrepancy, but we nevertheless treat
$1,073,608 as the amount at issue, in accordance with
respondent’s determination and the parties’ stipulation.
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