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Some of the facts have been stipulated and are so found. The
stipulated facts are incorporated in our findings by this
reference.
FINDINGS OF FACT
At the time petitioners filed their petition, they resided in
Delafield, Wisconsin.
Background
From approximately 1956 until 1987, petitioner was a 50-
percent shareholder and vice president of ARCO Industries (ARCO),
a Wisconsin corporation that manufactured chemicals for the
swimming pool industry. Carl Ulrich, who served as president of
ARCO, owned the remaining 50-percent interest in ARCO.
In 1987, petitioner and Mr. Ulrich sold their interests in
ARCO to Sowhite Chemical Corp. (Sowhite Chemical), another
Wisconsin corporation in the same business as ARCO, and petitioner
then retired. Sowhite Chemical agreed to pay the purchase price
for petitioner's and Mr. Ulrich's interests in ARCO through monthly
installments over an 11-year period. The amount of petitioner's
monthly installment was approximately $7,488. In October 1993,
Sowhite Chemical filed for bankruptcy protection and stopped making
payments to petitioner.
IRA Distributions
When petitioner sold ARCO, he rolled his qualified pension
plan into an individual retirement account (IRA). In 1989,
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