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guilty to the conspiracy charge.3 Mr. Mohney was subsequently
convicted of the remaining charges, and his conviction was
affirmed on appeal. United States v. Mohney, 949 F.2d 1397
(6th Cir. 1991).
Petitioner and all of its related corporations jointly
agreed to pay the legal fees of any officer, employee, or
business associate called as a witness before the grand jury or
any proceeding stemming therefrom. The legal expenses that were
claimed by petitioner (and that are in issue herein) were the
amounts that it paid to the Fund, which was an escrow account
that was established by MBS in 1985 to administer this agreement.
The Fund was a separate, interest-bearing account. MBS
maintained the Fund’s cash receipts journal, cash disbursements
journal, and check book registers. There were no written
agreements prepared and signed contemporaneous to the
establishment of the Fund.
Petitioner made monthly payments of $200 to the Fund.
During petitioner’s 1985 through 1990 taxable years, petitioner
made payments to the Fund totaling $11,400. During its 1989
taxable year, petitioner paid $1,948 to the Fund. The amounts
paid to the Fund were recorded by petitioner in a prepaid asset
account and were not deducted by petitioner until the amounts
3 Mr. Klein was later convicted of this charge.
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