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became shareholders of Good Shepherd on January 6, 1986.
Petitioners Valdis and Vaida Vipulis are individuals who made a
joint return of income for 1985 and resided in Cold Springs, New
York, at the time their petition was filed. Petitioner Valdis
Vipulis became a shareholder of Good Shepherd on December 8,
1985.
Good Shepherd is an Indiana corporation, incorporated on
December 30, 1985.
All of petitioners, and Good Shepherd, are calendar year
taxpayers. (We will use the term "shareholders" to refer to
those petitioners who were shareholders of Good Shepherd.)
The Property, Ona Pranckeviciute, and Lithuanian Good Shepherd
Home
Central to our discussion is a parcel of real property
located in Cedar Lake, Indiana (the property). Sometime during
the summer of 1982, Ona Pranckeviciute (Ona) purchased the
property from the Salesian Society, Inc. (Salesian). In the
contract of sale between Ona and Salesian, the property is
described as an approximately 86-acre tract containing the
following improvements: scholastic building, cafeteria,
dormitories, gymnasium, chapel, and water plant. Ona agreed to
pay $1 million for the property. She paid $100,000 immediately,
and she agreed to pay the remaining $900,000 in installments,
without interest, her installment obligation (the Salesian
obligation) being secured by a mortgage against the property (the
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