- 24 -
distributions to Jean Ann Richard in 1995 constitute constructive
dividends to CFC’s shareholder(s). For some reason, respondent
did not make a similar determination with respect to the
distributions to John Cordes in 1994 and 1995 or with respect to
the distributions to Jean Ann Richard in 1994.17
Respondent’s positions are inconsistent, and respondent’s
arguments are confusing, incomplete, and unsupported, at best.
In light of our holding, we see no need to address them fully.
The distributions to John Cordes, Jean Ann Richard, and Mrs.
Cordes were charged to John Cordes’s and Jean Ann Richard’s loan
accounts. Those loan accounts were established to account for
the $1,600,000 that was distributed in effect to Mr. Cordes and
returned to CFC until Mr. Cordes determined what to do with the
funds. The loan accounts operated in substance as savings
accounts from which Mr. Cordes distributed funds to his family
members at will. Because we have already held that Mr. Cordes
must report the $1,600,000 recorded in the loan accounts as
constructive dividends, we hold that the distributions from the
loan accounts; i.e., the distributions of $94,000 and $250,000 to
17Respondent instead argued that the distributions to John
Cordes establish that a bona fide debt existed between CFC and
John Cordes, but respondent did not determine that a portion of
those distributions constituted interest income or, if respondent
agreed with petitioners that these distributions were interest-
free loans from CFC to John Cordes, that the forgone interest
constituted a constructive dividend to CFC’s shareholder(s).
Respondent has not made an argument with regard to the
distributions to Jean Ann Richard totaling $90,000, other than to
mention that they may constitute constructive dividends or the
proceeds of an installment sale to Jean Ann Richard.
Page: Previous 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 NextLast modified: May 25, 2011