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securities was supposed to be used to purchase United, but,
instead, it was paid out to employees and officers as salary and
bonuses. The corporations did not fund the purchase of United or
reinvest the securities proceeds in assets or income-producing
entities. Mid-Continent Acquisitions attempted to sell
$21,600,000 of money multiplier notes, and Mid-Continent
Marketing attempted to sell $8,640,000 of money multiplier notes.
Farmers were told that they would receive a guaranteed income of
15 percent from their Mid-Continent securities investment.
Essentially, the farmers had invested their life insurance cash
surrender values in what had evolved into a Ponzi scheme.
Of approximately $3 million of the Mid-Continent
corporations' securities sold during 1982 and 1983 (approximately
$600,000 during 1982), over $1 million went to petitioner, Roy,
and Cooper as salaries and bonuses. After the Mid-Continent
corporations were organized, petitioner continued to operate
Estate, an S corporation.
Petitioners included $110,000 of income from the Mid-
Continent corporations on their 1982 income tax return. That
income was reflected in the category "Other income" as
"Reimbursement of Pre-Incorporation Expenses". Petitioner did
not incur preincorporation expenses in connection with the
organization of the Mid-Continent corporations. No documentation
concerning said preincorporation expenses was provided to the
corporation income tax return preparer, J. Richard Home (Home), a
Certified Public Accountant. Home required petitioner, Roy, and
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