- 51 -
On-Site reported its operations for Federal income tax
purposes on a calendar year, and it used the cash method on its
relevant tax returns. These returns included the following data:
1988 1989 1990 1991 1992
Total income $1,130,895 $1,108,792 $923,488 $114,270 $603,522
Compensation of officers120,910 213,985 219,621 71,011 135,519
Salaries & wages 234,900 387,389 122,142 135,72486,660
Pension, profit-sharing, plans 104,296 47,3001,585 - 0 -- 0 -
Employee benefit programs- 0 - - 0 - - 0 - 1,7114,116
Ordinary income (loss)471,158 232,440 371,926 (230,453) 213,508
Of the reported compensation, Mr. Traegde received $117,536,
$201,956, $205,870, $56,808, and $125,207 during the respective
years.
B. On-Site's Introduction to the Prime Plan
Thomas J. Connelly was the Prime Plan's sales agent for
On-Site. Mr. Connelly introduced Mr. Traegde to the Prime Plan
in late 1988. Mr. Connelly had observed that Mr. Traegde did not
have a succession plan for his business or any estate planning,
that the Prime Plan offered death benefits for Mr. Traegde, and
that the Prime Plan would give Mr. Traegde a source of funds to
close his business when he decided to leave.
On October 4, 1988, Mr. Connelly wrote to On-Site's C.P.A.,
Thomas P. Joynt, explaining the Prime Plan. On November 7, 1988,
Mr. Joynt replied with certain questions about the Prime Plan, as
well as On-Site's possible participation therein. On
November 17, 1988, Mr. Connelly responded to Mr. Joynt's letter.
Mr. Connelly discussed the Prime Plan with Mr. Traegde.
Based on these conversations, and after reading the promotional
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