George Georgiou and Judith Georgiou A.K.A. Judy Georgiou, et al. - Page 3

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            Georgiou in 1990 can be recharacterized as a business interest                                 
            expense under section 163(a); whether ownership of JAI stock was                               
            transferred from Georgiou to Kolonaki during 1989 or 1990,                                     
            creating a dividend under section 304; and whether Georgiou is                                 
            liable for penalties under section 6662 for 1989 and 1990.  The                                
            issue remaining for decision as to Georgiou Retail Stores (GRS)                                
            is whether GRS's cost of goods sold in 1989 must be reduced by                                 
                                           FINDINGS OF FACT                                                
                  Some of the facts have been stipulated, and the stipulated                               
            facts are incorporated in our findings by this reference.  The                                 
            Georgious were residents of California, and Kolonaki and GRS had                               
            their principal places of business in California, at the time the                              
            petitions were filed.                                                                          
                  Georgiou incorporated Kolonaki in California in 1975 as a                                
            retail store that sold giftware and clothing from various parts                                
            of the world, predominantly merchandise from Greece.  Prior to                                 
            founding Kolonaki, Georgiou had obtained degrees in economics and                              
            mathematics and had worked as a systems analyst.  Kolonaki was                                 
            wholly owned by Georgiou from incorporation throughout the years                               
            in issue.  From 1975 through 1987, Kolonaki expanded to include                                
            both wholesale and retail operations.  By 1988, the retail                                     
            division consisted of approximately 26 stores named "Georgiou".                                
            The "Georgiou" stores' merchandise consisted primarily of                                      

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