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When AJF suffered a shortage of drivers for its scheduled
deliveries, it hired leased labor from Manpower Temporary
Services. During 1988, 1989, and 1990, AJF claimed expenses for
leased labor in the amounts of $5,074, $16,946, and $22,332,
respectively. AJF also claimed deductions for "driver expenses"
for 1988, 1989, and 1990 in the amounts of $37,172, $68,157, and
$60,596, respectively. Respondent has allowed these deductions.
Circumstances Surrounding Ferrentino's Cashing of AJF's Delivery
Service and Fuel Reimbursements Checks
During the years in issue, Ferrentino controlled all the
checks issued from J.C. Penney to AJF. Ferrentino determined
whether he would cash checks personally or have them deposited
into AJF's corporate operating account. Ferrentino knew that AJF
corporate income was determined by its accountants by examining
deposits into AJF's bank account. AJF's gross income was
determined from deposits to the bank account which were reflected
in the cash receipts journal. He also knew that if the checks
for fuel reimbursement and delivery services were not deposited
into AJF's bank account, then corporate income tax returns would
not reflect these amounts.
J.C. Penney Custom Decorating Divisions (Custom Decorating)
issued checks to "AJF and/or A.J. Ferrentino" for services
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Last modified: May 25, 2011