- 69 -
whether the amounts paid to the purported directors were
reasonable and customary in the industry. This appears to be
just another instance where Burton channeled funds from ERG for
personal reasons. Accordingly, we find and hold that Burton had
constructive dividend income of $6,000, $23,000, $42,000, and
$49,000 in 1989, 1990, 1993, and 1994, respectively.
10. Townsend & Townsend Check
The parties stipulated that the law firm Townsend & Townsend
issued ERG a check for $15,000 dated January 14, 1994, which
Burton negotiated in favor of an insurance company. The funds
were credited to an insurance policy against which Burton had
previously taken loans. Additionally, the parties stipulated
that during the years at issue, Elizabeth was the primary
beneficiary of the insurance policy. The beneficiary was not
changed to ERG until sometime in 1996. At trial, Burton
testified that when the insurance policy was purchased, it was a
mistake to designate his wife as the primary beneficiary; he
thought the policy was a “key man” policy owned by ERG. Burton
testified that the loan proceeds originally taken against the
policy were used to meet ERG’s payroll.
There is no evidence, save Burton’s self-serving testimony,
that the funds were used for the benefit of ERG. The record,
instead, demonstrates that two loans were taken against the
insurance policy in 1975 and 1984 which totaled approximately
Page: Previous 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 NextLast modified: May 25, 2011