Henry P. and Darlene C. Brantley - Page 10

                                                 -10-                                                   
            documents that petitioners had earlier presented.  Petitioners'                             
            counsel related the following information to respondent's counsel                           
            during the meeting.                                                                         
                  1.    Petitioner is a chemical engineer whose specialty is                            
            paint.  In 1990 he was employed by Elite, a company that developed,                         
            produced, and sold special application paints for bridges,                                  
            ironwork, and railroad rolling stock.  Until 1987, Elite was a                              
            wholly owned subsidiary of H. Enterprises.                                                  
                  2.    Prior to 1987, petitioner had loaned funds or had not                           
            received salary so that Elite essentially owed him $72,000.  In                             
            1987, Elite issued petitioner 49 percent of the outstanding stock.                          
            In return, petitioner contributed $72,000 to Elite and signed an                            
            interest-bearing note for $228,000.  Petitioner expected to pay the                         
            note with future Elite dividends.  However, Elite did not pay                               
            dividends because its excess cash was "siphoned off" by Mr. Hargis.                         
            As a result of the transfer of stock in 1987, Elite was no longer                           
            able to file a consolidated return and began to file its own income                         
            tax returns.                                                                                
                  3.    Through two separate agreements entered into in April                           
            1990, Elite canceled the $228,000 note, and petitioner acquired the                         
            remaining outstanding shares of Elite stock.  Central to the change                         
            in ownership, but not part of the agreements, was a refinancing                             
            arrangement whereby the financial backer of the corporation was                             
            replaced.                                                                                   






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