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Commissioner, 89 T.C. 1280, 1295 (1987); Falsetti v.
Commissioner, 85 T.C. 332, 356-357 (1985); Henry Schwartz Corp.
v. Commissioner, 60 T.C. 728, 744 (1973). Petitioner does not
contend that TCM’s earnings and profits were less than the amount
of constructive dividends respondent determined. We conclude
that all of TCM’s unreported income was constructive dividend
income to petitioner because he caused NSA to divert TCM’s income
to Camaro and he used some of the diverted funds for his own
benefit. We do not limit our holding to the amount respondent
can prove was spent for petitioner’s personal benefit because
respondent's determination is presumed to be correct for 1987,
see Levitt v. Commissioner, T.C. Memo. 1995-464, affd. without
published opinion 101 F.3d 691 (3d Cir. 1996), and respondent
presented sufficient evidence to carry the burden of proving the
increased deficiency for 1988.
TCM was an S corporation in 1988, and so it is not taxable
on any unreported income it had for that year; that income passes
through to petitioner. Sec. 1366.
We conclude that petitioner understated his taxable income
by failing to report constructive dividends from TCM of
$308,723.36 in 1987 and his 100-percent distributive share of
TCM’s unreported income of $1,421,217.97 in 1988.
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