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Commissioner, 565 F.2d 1388 (9th Cir. 1977), affg. T.C. Memo.
1973-223).
In order for a company-provided benefit to be treated as
income to the shareholder, the item “must primarily benefit
taxpayer’s personal interests as opposed to the business
interests of the corporation.” Ireland v. United States, supra
at 735; accord Dolese v. United States, supra at 1152.
Petitioners bear the burden of proving that the amounts at issue
were not expended for personal benefit or in discharge of
personal obligations. Rule 142(a); Welch v. Helvering, 290 U.S.
111 (1933); Challenge Manufacturing Co. v. Commissioner, 37 T.C.
650 (1962); Arnold v. Commissioner, T.C. Memo. 1994-97. Our
standard, in reviewing these many expenditures, is whether the
expense primarily benefited ECI or CFC, as appropriate, or their
sole shareholder, Mr. Cordes. Frazier v. Commissioner, T.C.
Memo. 1994-358, affd. 90 F.3d 437 (10th Cir. 1996).
A. Constructive Dividends From Eddie Cordes, Inc.
1. Diversion of Checks From Unidentified Loans,
Diversion of Tag Refunds, and Excess Payoffs
Petitioners concede these items constitute constructive
dividends for 1994 and 1995. Petitioners’ only contention is
that Mr. Cordes did not receive income from these items because
he was not a shareholder in ECI. We have already held that Mr.
Cordes was ECI’s sole shareholder for Federal income tax
purposes, and we now hold that petitioners’ concession operates
to include these items in Mr. Cordes’s income.
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