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4. Diversion of Checks From Bad Debt Recoveries and
Diversion of Unbooked CFC Income
The parties agree that these items constitute constructive
dividends for 1994, in the amounts of $10,380 and $71,910,
respectively. Petitioners’ only contention is that Mr. Cordes
did not receive income from these items because he was not a
shareholder in CFC. We have already held that Mr. Cordes was
CFC’s sole shareholder for Federal income tax purposes, and we
now hold that petitioners’ concessions operate to include these
items in Mr. Cordes’s income.
5. Unexplained Source of Funds
In connection with respondent’s determination that Mr.
Cordes purchased the 1994 and 1995 notes at prices below fair
market value, respondent further determined that CFC provided
some of the funds for those purchases or further discounted the
purchases. That is, although the parties stipulated that CFC
sold the 1994 notes to Mr. Cordes for $1,600,700, only $1,248,907
could be traced to funds supplied by Mr. Cordes. Respondent
determined that the difference, $351,793, was a further
constructive dividend from CFC to its shareholder(s). Likewise,
the parties stipulated that CFC sold the 1995 notes to Mr. Cordes
for $4,139,512 but that only $3,963,462 could be traced to funds
supplied by Mr. Cordes. Respondent determined that the
difference, $176,050, was a further constructive dividend from
CFC to its shareholder(s). The parties later stipulated that of
those amounts, only $45,702 constitutes a constructive dividend
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