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the 1984 year. Mr. Johnson did extensive traveling on behalf
of the corporations in connection with the promotional
activity. He would travel, entertain, and incur expenses that
were paid with either a credit card or cash. After 1, 2, or
sometimes 3 months' accumulation of receipts, Mr. Johnson would
go through the receipts and mark their purpose. All of the
Johnsons' bills, both personal and business, were paid by the
corporations. At the end of each year, the amount for a
particular category (e.g., gasoline) would be totaled, and Mr.
Johnson would make a judgment call about the percentage of
business and personal use of that item.
Service deducted and respondent disallowed for lack of a
business purpose $858 and $2,222 for 1982 and 1983 as medical
expenses and insurance for the Johnsons. For 1984, Service
deducted (as a bonus) and respondent disallowed (for lack of a
business purpose) the purchase of 30,000 shares of stock in the
name of the Johnsons' minor child for $4,500. Mr. Johnson
testified that the $4,500 was part of reported compensation
from Service to him, yet no substantiation was provided to
support Mr. Johnson's testimony.
For 1984, Service deducted, as a bad debt, $56,000, which
amount comprised loans to Linda Krabill, Kent Oaks, and Ed
Rector. Some of the loans had been made in 1984 and some in
1985, but all were claimed to have been made in 1984. Linda
Krabill was an interior decorator who worked for the Johnsons
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