- 29 -
that he received the $50,000 payment in cash and by check.
Although he testified that the entire $50,000 payment came from
the Corestates Bank account, Mr. Wen failed to identify how he
knew the source of the cash payments. No credible evidence in
the record connects the $50,000 paid to Mr. Wen to the above-
mentioned deposits to the Corestates Bank account.
We hold that Mr. Kong received distributions of $358,976.25
in 1994 and $271,038.64 in 1995 from Sam Kong Fashions.19
Petitioners did not argue that Sam Kong Fashions had insufficient
earnings and profits for these amounts to constitute constructive
dividends. Based on the corporate returns and our findings of
additional corporate unreported income, we find that there were
sufficient corporate earnings and profits and that Mr. Kong
received constructive dividends in 1994 and 1995.
III. Section 6663--Fraud Penalty
Section 6663(a) provides that “If any part of any
underpayment of tax required to be shown on a return is due to
fraud, there shall be added to the tax an amount equal to 75
percent of the portion of the underpayment which is attributable
to fraud.” The Commissioner bears the burden of proving fraud by
clear and convincing evidence. Secs. 7454(a), 7491(c); Rule
142(b). To satisfy this burden, the Commissioner must establish
19 See supra p. 25, where we held that Sam Kong Fashions had
additional unreported taxable income of $358,976.25 in 1994 and
$271,038.64 in 1995.
Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 NextLast modified: May 25, 2011