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valued by petitioner at $100,000. Both the bank accounts and the
furniture and equipment had been used by petitioner while he was
operating under the name of GAPS. Sometime after the
incorporation of GAPS in March 1989, petitioner also transferred
$1,000 to GAPS in exchange for 1,000 shares of GAPS common stock.
The bank accounts transferred by petitioner to GAPS were the
claims account and the premium account. The claims account was
an account through which funds flowed from employers and
insurance carriers to employee beneficiaries and service
providers. The premium account was a collection account that was
used to bill employers, collect premiums, and remit net premiums
to insurance carriers.
Petitioner and his accountant, John Pritten, prepared 10
promissory notes from GAPS to petitioner. All of the notes are
preprinted "fill in the blank" promissory notes. Each of the notes
bears a typed-in issuance date and due date and a stamped
cancellation date and purports to bear interest at 5.25 percent.2
2Copies of the notes assembled as petitioners' Exhibit 109
also show the following:
NOTE NUMBER AMOUNT ISSUANCE DUE DATE CANCELED
1 $23,364.36 1/1/86 12/31/86 12/31/??
2 30,313.13 12/31/86 12/31/87 12/31/87
3 104,427.00 12/31/87 12/31/88 12/31/88
4 48,686.21 12/31/87 12/31/88 12/31/88
5 57,857.81 12/31/88 12/31/89 12/31/89
6 31,637.00 12/31/88 12/31/89 12/31/89
7 38,686.21 12/31/88 12/31/89 12/31/89
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