Henry P. and Darlene C. Brantley - Page 9

                                                  -9-                                                   
            Elite is shown as a liability; and (2) petitioner's half-interest                           
            in petitioners' residence is listed as an asset, while the full                             
            amount of the residential mortgage is shown as a liability.                                 
            Respondent's counsel contended that an accurate financial statement                         
            would show that petitioner was in fact solvent in April 1990                                
            because Elite owned  valuable  equipment,  patents,  and  real                              
            property.5                                                                                  
                  Respondent's counsel was uncertain whether section 108(e)(5)                          
            applied because it was not clear from whom petitioner acquired his                          
            Elite stock.  Petitioners never provided respondent's counsel with                          
            Elite's stock record book.  Respondent's counsel believed that                              
            section 108(e)(5) would apply only if Elite had sold the stock to                           
            petitioner.  In addition, section 108(e)(5) requires petitioner to                          
            have been solvent in April 1990.                                                            
                  Finally, respondent's counsel believed that petitioner                                
            acquired all of the Elite stock through a series of agreements in                           
            which valuable property and rights to property were transferred to                          
            Mr. Hargis and entities that he controlled in exchange for his                              
            Elite stock.  Petitioners' claim that the Elite stock was worthless                         
            was belied by the hard-bargained series of deals.                                           
                  On February 16, 1995, counsel for petitioners and respondent                          
            met to discuss the case.  Petitioners' counsel for the first time                           
            provided respondent's counsel with factual background to the                                

            5           An Oct. 3, 1989, letter states that Elite was worth                             
            approximately $1,250,000.                                                                   




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