- 32 -
for each of 1994 and 1995, and respondent concedes that the
amounts in excess of those stipulations are not constructive
dividends.
The only issue with regard to these items is who received
these constructive dividends. Because Mr. Cordes was CFC’s sole
shareholder for Federal income tax purposes, we hold Mr. Cordes
must include constructive dividends of $45,702 in income for each
of his 1994 and 1995 taxable years.
II. The Proper Tax Treatment of Interest Earned on the 1994 and
1995 Notes
In our discussion above regarding the 1994 and 1995 notes,
we found that Mr. Cordes purchased 584 notes from CFC in each of
1994 and 1995. Respondent determined that Mr. Cordes earned
interest on the notes purchased20 and that Mr. Cordes earned that
interest in connection with his trade or business (presumably the
trade or business of financing, but respondent has not
specifically named that trade or business) and is liable for tax
on the net earnings from self-employment. The parties stipulated
that interest in the amounts of $138,409 and $448,164 was earned
on the notes in 1994 and 1995, respectively.
Petitioners concede that neither CFC nor Mr. Cordes reported
any of that interest as income and that the owner of the notes,
either CFC or Mr. Cordes, must report that income. Petitioners
20Respondent alternatively determined that if we find Mr.
Cordes did not purchase the notes; i.e., that CFC still owned the
notes, then CFC must report that interest as income in 1994 and
1995.
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011