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cash disbursements journal included a specific column for
insurance expenses. The checks made out to Standard for the
disability insurance were initially entered into the insurance
expense column.
In either January or February, after the close of the year,
Mr. Cotler, in consultation with Bruce Gladstone (Mr. Gladstone),
a certified public accountant employed by the firm, would make
adjusting entries to the cash disbursements journal. Mr. Cotler
would reduce the amount of the insurance expense column by the
amount of the Standard premium that was attributable to him;
i.e., $81 per month (thereby subtracting the firm’s insurance
expenses). The $81 per month was concurrently subtracted from
Mr. Cotler’s shareholder loan account to the firm (which
subtracted the amount the firm owed to Mr. Cotler) to reflect the
fact that he personally paid for his disability insurance.
Furthermore, at the end of the year, Mr. Cotler had a consistent
practice of going through the cash disbursements journal and
subtracting his personal expenses from the expense columns to
ensure that they were not deducted on the firm’s Form 1120, U.S.
Corporation Income Tax Return.
Mr. Gladstone prepared a document entitled “Loan
Receivable--Stockholder” that reflected that Mr. Cotler’s
personal expenses were subtracted from his loan account to the
firm. For 1997, Mr. Gladstone subtracted $567 from Mr. Cotler’s
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Last modified: November 10, 2007