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The IRS began an audit of Kolonaki in November 1990.
Kolonaki's representative at the January 8, 1991, interview and
throughout the audit was David Pryor (Pryor), a C.P.A. with
Crisafi, Sciabica and Woodward (Crisafi), Georgiou's regular
accounting firm. On March 7, 1991, the IRS began an audit of the
year ended September 30, 1989. Early in the JAI audit, Pryor
informed the IRS agent that Georgiou was the owner of JAI.
In April or May 1991, Georgiou met with Pryor and Robert
Woodward, two accountants from the Crisafi firm, to discuss
consolidated return treatment for JAI on Kolonaki's September 30,
1990, tax return. Pryor had discovered the beneficial ownership
concept in a Bureau of National Affairs, Inc., tax portfolio and
presented it to Georgiou. Pryor suggested that a second meeting
be held with Georgiou and Lucius P. Bernard (Bernard), Georgiou's
attorney, to discuss whether Kolonaki had beneficial ownership of
the JAI stock that was issued in Georgiou's name.
Georgiou subsequently met with Pryor and Bernard to discuss
consolidated return treatment for JAI on Kolonaki's return.
Bernard was not a tax specialist. The meeting concluded with the
understanding that JAI could file a consolidated return with
Kolonaki, if Kolonaki could establish that it was the beneficial
owner of at least 80 percent of JAI stock. It was agreed that a
Holding Agreement between Kolonaki and Georgiou would be the best
way to document the intention that Kolonaki was the beneficial
owner of Georgiou's JAI stock.
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