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Although the Zhadanovs do not dispute that they had physical
control over the cash, they vigorously contest that they
appropriated the cash to their own use. They emphasize that they
never spent any of the unreported corporate cash for personal
purposes, as evidenced by the fact that the entire disputed
amount was still in the safe on the date the cash was seized and
Mr. Zhadanov was arrested in 1993.17
Although control over an asset can be evidence of an
economic benefit, control of an asset by a shareholder-officer
does not necessarily result in a benefit that is taxable to the
shareholder. For example, a constructive dividend does not
result when, despite “extremely informal” dealings, a sole
shareholder’s intent in transferring funds from the corporation
to his personal checking account “was to use such funds for
corporate purposes as an agent of the corporation.” Nasser v.
United States, 257 F. Supp. 443, 449 (N.D. Cal. 1966); see also
Loftin & Woodard, Inc. v. United States, 577 F.2d 1206, 1215 (5th
Cir. 1978). Likewise, we have held that a sole shareholder’s
physical control over unreported corporate cash does not result
in constructive dividends where the shareholder evidences an
intention to hold and use those funds for corporate purposes.
17We note that $827,981 was seized from the safe in May
1993, but respondent has taken the position in this case that the
total unreported vial income for all the years at issue was only
$728,346. Implicit in respondent’s position is that $99,635 of
the cash seized from the safe was not unreported vial income.
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