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Freyberger, the BR Associates, Inc. controller, testified
that one of his functions, particularly on behalf of Sidal, was
to track the cashflow in and out. He stated that the “tax
characterization” of any cash transfer, on the books of both
Paulan and Sidal, was made by Michel. In that connection, he
testified that he prepared the annual trial balances, which he
gave to Michel, who was responsible for making any adjustments.
Michel testified that he followed that procedure (yearend
adjusting entries) with respect to the Paulan direct payments by
recharacterizing, as back-to-back loans through petitioners, the
notes payable and notes receivable that had been initially
recorded by Freyberger (consistent with the actual cashflow) as
debt obligations running from Sidal directly to Paulan.
Contrary to Michel’s testimony, not all of the Paulan direct
payments, which were originally recorded by Freyberger as giving
rise to notes payable from Sidal to Paulan, were the subject of
yearend adjusting entries on the Sidal and Paulan adjusted trial
balances. The July 11, 1997, Paulan direct payment of $1.2
million and the 1998 Paulan direct payments to the extent of
$928,000 are reflected on all of the Paulan and Sidal trial
balances in evidence (subsequent to those payments) as Sidal
notes payable (“N/P”) to Paulan or Paulan notes receivable
(“N/R”) from Sidal. The 1999 and 2000 Paulan direct payments,
like their 1997 and 1998 counterparts, were also initially
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