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checks, 21 (totaling $195,286) were written to various taxing
authorities in payment of petitioners’ personal tax liabilities
(11 for Al, 10 for Sid), and three (totaling $6,593) went to pay
insurance premiums for Sid. The other 31 checks (totaling
$487,905) (the 31 checks) were written to petitioners (16 to Al,
15 to Sid, all listed under the heading “General”), presumably,
to use in any way they saw fit. There is no evidence that the 55
checks were treated on Paulan’s books as anything other than
distributions to petitioners.
We do not consider the 31 checks as anything other than
distributions of accumulated profits or, if more than accumulated
profits, as return of capital. Being written to petitioners,
those checks are not evidence of their use of Paulan as an
incorporated pocketbook; i.e., to make payments directly to third
parties on behalf of one or the other of petitioners. Moreover,
the 24 Paulan checks paid over a 5-year period for petitioners’
taxes and insurance (approximately five checks a year) are not of
a volume or of such a general nature that we are convinced that
Paulan habitually paid petitioners’ bills. In sum, the 55 checks
and the conclusions to be drawn from them are insufficient to
convince us that the Paulan direct payments were made by Paulan
to Sidal on petitioners’ behalf.
15(...continued)
written for or on behalf of either Sid or Al, personally.
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