Dennis C. Gandy - Page 9

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          salesmen, a separate reception area, and a larger tag room; the             
          former kitchen/tag room was made into a break room.                         
               In approximately 1984, petitioners bought a Tandy computer             
          for the nursery.  Due to the computer's limited capabilities,               
          petitioners decided to use it only for billing the nursery's more           
          detailed and frequent accounts, generally those of the chain                
          store customers.  Petitioners continued the use of the previous             
          invoice system for the remaining customers; these orders were not           
          recorded on the computer.  The two types of invoices had separate           
          numbering sequences.  Mrs. Gandy established two ledgers, one for           
          each type of invoice.  In 1985, petitioners bought an IBM                   
          computer with a new accounting software package.                            
               During 1985 through a portion of 1987, Mrs. Gandy worked in            
          the business office of the nursery on a daily basis.  She was in            
          charge of the office and trained the employees who worked there.            
          Sometime during 1987, Mrs. Gandy quit working in the office.  Ann           
          Dozier (Dozier) became the office manager after Mrs. Gandy left.            
          Mr. Gandy spent very little time in the office, spending most of            
          his time in the field.  Many of the office employees were either            
          friends or relatives of petitioners or of each other.                       
               During the years in issue, petitioners maintained a business           
          bank account at the First State Bank of Van styled "Dennis Gandy            
          Nursery" (account No. 01-0118-8), which was the business bank               
          account for the nursery.  During 1989, Mr. Gandy maintained a               
          business bank account at the First National Bank of Canton styled           

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