Barry B. Bealor and Nancy L. Bealor, et al. - Page 109

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          Qulart's 12-percent note to Machise.                                        
               For the year 1987, MIT 83, like the other partnerships,                
          changed its method of accounting from the cash method to the                
          accrual method.                                                             
               At the end of 1987, the cash paid and short-term notes                 
          issued by the partners in 1983 were still reflected by BBPA's               
          line-of-credit note for $284,300 in favor of MIT 83.  On                    
          December 31, 1987, Fred applied this note as a deemed                       
          distribution to the partners and the further use by them as                 
          partial payment of their notes to Qulart.                                   
               The following illustration depicts the purported                       
          transactions and flows of funds to which MIT 83 was a party.                
                             Investment Program--MIT 83                               
          A.  Investment Phase                                                        
               1.   Partners issue 12-percent notes to Qulart in the amount           
                    of $2,888,666, representing ten elevenths of MIT 83's             
                    capital.  (Fred and Bruce themselves execute $265,000             
                    of such notes by mistake to Machise).                             
               2.   Qulart issues a 12-percent note to Machise for                    
                    $2,888,666.                                                       
               3.   Machise issues a zero-percent demand note to Qulart for           
                    $2,888,666.                                                       
               4.   Qulart endorses the $2,888,666 note directly to MIT 83,           
                    allegedly at partners' request.                                   
               5.   By virtue of the endorsement in No. 4, above, the                 
                    partners are deemed to have invested $2,888,666 in the            
                    capital of MIT 83.                                                
               6.   Pursuant to the employee leasing agreement, MIT 83                
                    advances $2,888,666 to Machise by endorsing the zero-             
                    percent demand note to Machise.                                   




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