advisers recommended that the horses be transferred to APECO and
sold in its name so as to use APECO's NOL's to shelter any gain
realized on their sale. Had Mr. Kluener sold the horses
directly, a certain portion of any gain realized would have been
taxed as ordinary income pursuant to section 1245, and the
balance would have been taxed as capital gain. Consequently, the
amount netted from the sale would have been substantially reduced
by taxes.
On or about August 1, 1989, Mr. Kluener transferred to APECO
title to his entire collection of 41 horses, with an estimated
fair market value of $2,428,654. A separate division, APECO
Equine, was created to handle the horse-related activities. Only
Mr. Kluener, his assistant, and his tax advisers knew of the
transfer when it occurred. The other directors and officers of
APECO, including its president, Marvin Stock (Mr. Stock), were
not informed of the transfer, and Mr. Kluener and his advisers
made every effort to ensure that those others did not learn of
it. Mr. Stock also was unaware of the existence of APECO Equine.
The transfer was not reflected in APECO's monthly financial
statements for its year ending June 30, 1990.
After the horses were transferred, Mr. Kluener's assistant
continued to perform the same functions with respect to the
horses as she had prior thereto, and the functions were performed
at Mr. Kluener's office in Cincinnati, rather than at APECO's
office in Harrison. Although Mr. Kluener's assistant was
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