Truesdell v. Commissioner
United States Tax Court
89 T.C. 1280 (1987)
- Written by Heather Ryfa, JD
Facts
James Truesdell (plaintiff) was the sole shareholder of one corporation and controlled a second corporation through its sole shareholder, Truesdell’s minor son. Truesdell sometimes deposited corporate funds into his personal bank accounts and used corporate funds for personal expenses. Paperwork for both corporations was frequently thrown away rather than retained to support bookkeeping entries. Truesdell’s inaccurate record keeping meant that the corporation’s accountants were unaware of some income, which was not reported on either the corporate books or tax returns. The commissioner of the Internal Revenue Service (defendant) sent a notice of deficiency for three tax years, which assessed unreported income from the corporations as constructive dividends and contended that such deficiencies were due to fraud. Truesdell appealed the deficiency notice to the United States Tax Court, contending that the diverted funds were ordinary income rather than constructive dividends and that the failure to report such income was not fraudulent.
Rule of Law
Issue
Holding and Reasoning (Nims, J.)
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