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asked for substantiation of the charitable contributions, he was
initially given an alleged receipt from the Wrights’ church
showing $18,000. When he asked for copies of checks associated
with the payments, he was presented with a new tithing donation
slip for the amount of $28,750, which showed the same dates of
contributions as the prior receipt but different amounts. The
larger amounts were substantiated with copies of checks.
When the agent asked about the $72,000 in distributions to
Mr. Wright, the representative of the corporation and of the
Wrights initially had no explanation. Later the agent was told
that the distributions were loan payments, but no supporting
documentation was presented.
When the agent asked about travel expense substantiation, he
was presented with bills for travel for various family members,
including the Wrights’ teenaged children, and for greens fees for
golf outings. No contemporaneous records substantiating the
business purpose of certain trips were provided.
The notices of deficiency determined that checks amounting
to $72,000 were taxable to Mr. Wright as constructive dividend
income. The notices disallowed the business expense deductions
claimed by HJ Builders for the $4,120 disbursement directly to
the Wrights’ church and the $1,276 disbursement to the bus
company. Those amounts were recharacterized as constructive
dividends by the corporation to Mr. Wright. The notices allowed
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Last modified: May 25, 2011