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receive the exchange property by that time as required under
section 1031(a)(3)(B). IES, Strong Hope, and Ms. Ng entered into
an agreement on that date providing that IES would purchase the
Stockton Street property from Strong Hope for $1.1 million, and
that Strong Hope would deed the property directly to Ms. Ng. The
purchase price was to be paid as follows:
$ 400,088.33 Assumption of deed of trust
389,343.80 Cash in escrow
310,000.00 Promissory note from Ms. Ng to IES, assigned to
seller
567.87 Paid by Ms. Ng
$1,100,000.00
Ms. Ng, as agent of Strong Hope, deeded Strong Hope's 50-
percent interest to herself on May 9, 1989. Ms. Ng wanted the
escrowed funds to be released on that date. Founders refused to
pay the escrowed funds directly to Strong Hope because Founders
previously had been instructed to release the money only to IES.
On May 11, 1989, the escrow was canceled pursuant to instructions
from IES, and on May 16, 1989, Founders issued a check to IES for
$309,056.94, representing the proceeds from the sale of Ms. Ng's
Lombard Street property.
The proceeds from the sale of the Larkin Street and Lombard
Street properties, ostensibly used to acquire the Stockton Street
property from Strong Hope in a section 1031 exchange, actually were
used by Ms. Ng for her own purposes as follows:
* January 12, 1989--IES issued a $85,165.54 check to Strong
Hope, representing net proceeds from the sale of the Larkin Street
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