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Background
Petitioners Henry P. and Darlene C. Brantley resided in
Milledgeville, Georgia, at the time they filed their petition in
this case.
Petitioner is a chemical engineer. He was employed at all
relevant times by Elite, a Georgia corporation that produced and
sold paint and allied products.
In June 1985, petitioner wrote two checks totaling $72,000
(one to Hargis Enterprises, Inc. (H. Enterprises) and the other to
Gary W. Hargis) with respect to a "business agreement".
Apparently, this "business agreement" related to petitioner's
prospective ownership in Elite. At the time the checks were
issued, H. Enterprises and Mr. Hargis owned all of the stock of
Elite. Mr. Hargis was sole shareholder, president, and director of
H. Enterprises.
In the latter part of 1987, petitioner acquired 49 percent of
the outstanding stock of Elite. The record does not reveal from
whom (H. Enterprises, Mr. Hargis, or Elite) petitioner acquired the
stock. Petitioner paid $300,000 for his 49-percent ownership
interest. This amount consisted of $72,000 (which he had paid to
Mr. Hargis and H. Enterprises in 1985) and a $228,000 promissory
note to Elite.
At the time of the acquisition, representations were made to
petitioner that Elite's value exceeded $600,000 and that its plant
was in good physical condition. These representations proved
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