- 27 -
and we must therefore hold that the two $20,000 distributions to
Mrs. Cordes do not constitute deductible interest expenses to CFC
or interest income to Mrs. Cordes.
b. Loans and Repayment of Loans
Respondent determined that the amounts Mrs. Cordes received
and deposited which we have not yet addressed, $464,651 in 1994
and $100,000 in 1995, constitute constructive dividends to CFC’s
shareholder(s). Petitioners posit a theory that these
distributions are either loans from CFC to Mrs. Cordes or
repayment of loans by CFC to Mrs. Cordes. Petitioners rely on
their alleged history of loans, together with CFC’s treatment of
these distributions; petitioners did not introduce any evidence
that these distributions were loan related.
Petitioners failed to show that CFC benefited from these
distributions or that Mr. Cordes did not so benefit.
Distributions to family members can constitute constructive
dividends to the shareholder(s) when the distributions fail to
benefit the corporation. Cordes v. Commissioner, T.C. Memo.
1994-377 (in situation nearly identical to that before us, this
Court held CFC’s transfers to friends, wife, and children of Mr.
Cordes to be constructive dividends to him when he failed to show
corporate benefit or expectation of repayment); Proctor v.
Commissioner, T.C. Memo. 1981-436 (payments to shareholder’s
mother, in excess of compensation reasonable for services
19(...continued)
credible.
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