Epco, Inc. and Subsidiaries - Page 2

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            1995.  The facts and holding of that opinion are incorporated                                  
            herein by this reference.1                                                                     
                  Brooks McArthy (McArthy) sought to develop a trailer park on                             
            land he owned to be called Brookshire Village Mobile Home Park                                 
            (Brookshire).  McArthy utilized the resources of Eugene Fribis                                 
            (Fribis), an engineer consultant and owner of Epco, Inc.                                       
            (petitioner), the common parent of an affiliated group that                                    
            includes House Springs Sewer Co. (House Springs) and Imperial                                  
            Utility Corp. (Imperial). In particular, Fribis advised McArthy                                
            regarding the sewer system Brookshire would require.  McArthy                                  
            later opted for an underground sewage pipe extension to County                                 
            Club Manor (Manor), a sewage treatment facility operated by                                    
            Imperial.  This method required the construction of pipes and                                  
            expansion of Manor to handle the additional sewage.  The cost of                               
            this method totaled $540,000.  Each mobile home was required to                                
            pay a $400 "contribution in aid of construction fee" and a                                     
            monthly service charge of $18 for sewage treatment.2                                           
                  Imperial contracted with McArthy to build a sewer system for                             
            Brookshire.  Imperial agreed to build an underground wastewater                                
            collection pipe extending from Manor to Brookshire.  McArthy                                   
            agreed to pay Imperial $200,000 in "tap-on fees" ("contributions                               

            1  Unless otherwise indicated, all section references are to                                   
            the Internal Revenue Code as amended.  All Rule references are to                              
            the Tax Court Rules of Practice and Procedure.                                                 
            2  The term "tap-on fee" is commonly used interchangeably                                      
            with the term "contribution in aid of construction".                                           

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