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was to treat the $239,594.68 as revenue of Stainless, which
reported it as such for corporation income tax purposes. The
payments of the expenses by Mr. Lechner were treated as reducing
the receivable and were reported by Stainless as deductible
expenses for corporation income tax purposes.
In defending himself in the criminal tax case, Mr. Lechner
paid $134,108.54 between October 1, 1993, and September 30, 1994,
to his attorneys (hereinafter “defense fees”). The defense fees
were paid from Mr. Lechner’s individual resources and not from
funds of Stainless. After Mr. Lechner paid the defense fees,
Stainless deducted them on its corporation income tax return for
the fiscal year ended September 30, 1994.
Stainless did not reimburse Mr. Lechner in cash or by check
or in goods or services for his payments of the defense fees.
However, Stainless reduced the debt owed to it by Mr. Lechner in
the amount of the defense fees and made a journal entry in its
books of account to reflect the reduction, in the same way that
it reduced the debt owed by Mr. Lechner to reflect his payments
of expenses attributable to jobs in progress of the sole
proprietorship. The entry showed a reduction of $134,108.54 in
the amount of debt Mr. Lechner owed Stainless for “corporate
legal fees paid personally” for the corporate fiscal year ended
September 30, 1994. The $134,108.54 debt reduction included
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