National Industrial Investors, Inc. - Page 17

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                  In addition to Byrne's consulting agreement, petitioner also                         
            asked Byrne's son, Charles M. Byrne, III, (Charles) to                                     
            occasionally inspect prospective exchange property.  Petitioner                            
            also subscribed to two Northern California newspapers that                                 
            Charles collected and sent to Byrne or Frances, who searched in                            
            the papers' real estate and business sections for an exchange                              
            property.  Ultimately, petitioner failed to find a suitable                                
            exchange property.  The value of the Burke Property declined as                            
            the 1997 termination of the Burke Lease approached.  In 1991,                              
            with only 5 years left on the lease, interest in the Burke                                 
            Property vanished.  Petitioner stopped searching for a swap                                
            property in late 1991.                                                                     
                  Petitioner had other normal operating expenses during 1989                           
            and 1990, including a separate phone line at Byrne's residence,                            
            used exclusively for business, and a Spellmaster for Frances                               
            because she was "an atrocious speller".  Petitioner also paid                              
            part of the premium on Byrne's life insurance, asserting that it                           
            was "key man insurance".  As of 1988 NII was a 40-percent                                  
            beneficiary under the policy.                                                              
                  Petitioner also rented a storage space in Rancho Mirage                              
            during 1989 and 1990.  Petitioner stored brochures about Far                               
            Western's services, and homeowner kits produced for Sale By                                
            Owner, which provide how-to-sell-your-own-home information to                              

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