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would be listed for approximately $800,000 each, yielding a
profit of approximately $150,000 to $200,000.
Petitioner and Mr. Magness entered into an oral agreement in
which (1) petitioner agreed to advance Mr. Magness $200,000 in
$25,000 increments while the project was being completed,4 (2)
Mr. Magness agreed to hire petitioner as a consultant during the
construction of the Corbin project for a one-time consulting fee
of $40,000, due and payable when the Corbin properties sold, and
(3) Mr. Magness agreed to repay the $200,000 advance, plus
interest, when the project was completed and sold. At the time
petitioner advanced the money, both petitioner and Mr. Magness
understood that Mr. Magness would not be able to pay petitioner
any of the money required under the oral agreement unless the
Corbin properties sold.
On or about June 1, 1991, petitioner hired Mr. Magness to
supervise the framing and foundation of three spec houses
petitioner was building. This arrangement was not connected in
any way to petitioner's $200,000 advance. Mr. Magness was not
required to provide contracting services to petitioner as a
condition of receiving the advance, nor was he asked to provide
petitioner with any bills for his services. Petitioner paid Mr.
4Petitioner made the $200,000 advance to Mr. Magness with
checks drawn from petitioners' personal checking account totaling
$100,000 and checks drawn from the account of P&S Leasing, Inc.
totaling $100,000. P&S Leasing, Inc. is an S corporation owned
and operated by petitioner.
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