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On June 3, 1983, Machise drew a check in the amount of
$150,338 to MIT 80. This was the amount by which the "advances"
from MIT 80 to Machise had exceeded the total weekly amounts paid
in 1980 by Machise, through the MIT 80 payroll account, to the
employees and independent contractors. In a memorandum to one of
the partners, Bruce described this check as a nontaxable return
of an advance. Bruce's memorandum stated that the $150,338 had
been distributed to the partners pro rata and used by them to
make partial payments on the interest due on their notes payable
to Machise. Thus, the amount of Machise’s check circled back to
Machise.
On June 30, 1984, Fred prepared, and Machise issued to MIT
80, a demand note bearing no interest in the face amount of
$285,952.34. This note was a partial payment of the 10-percent
late charge on the compensation fee due under the employee
leasing agreement. Fred doubted that Machise had enough money to
pay the note. It was Fred's intention, however, that the note
would be endorsed back to Machise in a circular movement and
never presented for payment in cash.
On the back of this note was typed:
Pay to the order of: Machise
Interstate Transportation Co.
[Machise]
MIT 80
The note also contains the following legend:
By this endorsement, MIT 80
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