Harry D. Bledsoe and Annie L. Bledsoe - Page 6

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            case settlement of $66,721 and the Resthaven note case settlement                           
            of $14,695.26.  The remaining amounts were paid to the attorneys.                           
                  In 1986, petitioner, as president and chairman of the board,                          
            caused Resthaven to lend $110,000 to Albert Kamas (Kamas), a                                
            personal friend.  The loan was to help Kamas finance the                                    
            construction of a gasohol plant.  Petitioner, on occasion, asked                            
            Kamas to make payments on the loan.  In 1987, Kamas informed                                
            petitioner that he could not repay/make payments on the loan                                
            because the project had lost its government backing.  Kamas                                 
            received a discharge in bankruptcy in approximately 1992.                                   
                  On May 7, 1987, Diamond Inn Enterprises, Inc. (Diamond), was                          
            incorporated.  On or about June 1, 1987, Diamond authorized the                             
            issuance of 10,000 shares of section 1244 stock, and it received                            
            a total of $10,000 from its three incorporators.  Seventy-five                              
            percent of Diamond's stock was issued to petitioner.  Initially,                            
            petitioner paid $7,500 to Diamond and, for 1988, deducted a                                 
            section 1244 loss in the amount of $100,000.  In order to support                           
            the claimed loss, petitioner relied on each shareholder's                                   
            postincorporation payments in amounts proportionate to his                                  
            Diamond stock ownership percentage.  From its incorporation                                 
            through its failure in 1988, Diamond recorded loans from                                    
            shareholders in the total amount of $252,004.  Petitioner's                                 
            accountant subsequently determined that the $252,004 should not                             

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