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not have dominion or control over the funds, and the funds,
therefore, are not income to him. However, Mr. Cordes received
payments on notes he had already purchased from CFC and exchanged
them for more of CFC’s notes, which he then also owned. That Mr.
Cordes did not first deposit the payments received in a personal
account before purchasing additional notes is irrelevant. We
find that Mr. Cordes had full control over the payments and that
he owned the notes in question.
Clearly, Mr. Cordes purchased 1,168 notes from CFC in 1994
and 1995. Petitioners have disputed only who owned the 1994 and
1995 notes and have not addressed whether CFC sold the notes to
Mr. Cordes for prices below fair market value, should we
conclude, as we have, that Mr. Cordes owned the notes. Section
1.301-1(j), Income Tax Regs., states that “If property is
transferred by a corporation to a shareholder which is not a
corporation for an amount less than its fair market value in a
sale or exchange, such shareholder shall be treated as having
received a distribution to which section 301 applies.” Because
CFC sold the 1994 and 1995 notes to Mr. Cordes for prices below
fair market value, we hold that the differences between the
prices paid for the notes and the fair market values of the notes
are constructive dividends to Mr. Cordes. See Estate of Durkin
v. Commissioner, 99 T.C. 561, 567 (1992); Eugene D. Lanier, Inc.
v. Commissioner, T.C. Memo. 1998-7 (citing sec. 1.301-1(j),
Income Tax Regs.; Palmer v. Commissioner, 302 U.S. 63, 69-70
(1937)).
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