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Bard v. Commissioner, T.C. Memo. 1990-431; Alisa v. Commissioner,
T.C. Memo. 1976-255.
A careful review of the record in this case reveals a dearth
of credible evidence supporting respondent’s position that the
unreported Vortex cash was diverted by the Zhadanovs for their
personal use and economic benefit. The preponderance of credible
evidence in the record supports the Zhadanovs’ position that they
held the unreported cash for corporate use. At trial, the
Zhadanovs relied upon a cash receipts journal that, for
unexplained reasons, was not seized by the Government when it
executed search warrants in May 1993, and a cash disbursements
journal that recorded Vortex’s vial income and related
expenditures, which was seized during the May 1993 search. Both
documents record Vortex’s cash vial income and show it as a
corporate asset. Respondent apparently concluded that the cash
receipts journal was credible as he relied on it in determining
the amount of Vortex’s unreported income from cash vial sales for
each of the years at issue.
The facts clearly establish that the entire amount
respondent determined was unreported constructive dividend income
was seized by Government agents in May 1993. Respondent’s only
credible evidence in support of his determination that the
diverted corporate cash was a constructive dividend to the
Zhadanovs is that the Zhadanovs had physical control over the
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