The trusty CPA who prepared the general ledger and tax returns for Blossom Day Care Centers, Inc., and Barry A. Hacker and Celeste Hacker, T. C. Memo. 2022-16, filed 3/7/22, and their subsequent bookkeeper who took over general ledger duties, used that category for the business credit card expenses run up by Barry and Celeste and adult children but paid for by Blossom, which Barry and Celeste wholly owned, but from which they never received salaries or dividends.

Judge Elizabeth Crewson Paris has the third leg of this marathon.

“Petitioners and their children used the credit cards to make purchases necessary to operate the daycare centers, but they also regularly used them to pay personal expenses. During [four of the years at issue] the Hackers and their children charged thousands of dollars in personal expenses on Blossom’s credit card account, as well as their own AMEX, Citi, and Bank of America credit cards, all of which Blossom invariably paid. In addition to routine personal purchases, such as restaurant meals, auto expenses, and personal medical expenses, the Hackers either used the corporate credit card or had Blossom pay their personal credit card charges for such expenses as college tuition,  vacations, jewelry, and other luxury items. The Hacker children continued to make personal purchases with the credit cards even though they were not employees of Blossom….” T. C. Memo. 2022-16, at pp. 6-7.

Celeste and Barry have been here before. See my blogpost “Stipulate, Don’t Capitulate – One Mo Time,” 7/13/21, and “Headline News?” of even date therewith, as my expensive colleagues say.

Judge Paris has some rewriting to do, as the SNOD numbers need some extensive tweaking, but at close of play, Barry and Celeste are looking at Section 6663(a) 75% fraud chops.

But the moral for accountants is clear. If you don’t know what expenses are business or personal, ask. All credit card statements should be coded. Automobile lease or purchase installment payments must indicate whose vehicle and what purposes each vehicle serves.

And if you set up a category like “loans to shareholder,” “advances,” or “A/R – Officer,” and never see repayments or documentation, be prepared to see your name, if not in a T. C. Memo., then in an IRS computer.