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The Audit Reopened
By letter dated November 21, 1989, the IRS reopened its
audit of INI. Petitioner responded by submitting to the IRS a
signed statement that purported to explain the events that led to
his settlement with the Burke estate. This statement had several
documents attached, including a letter from petitioner to Thorpe
dated November 30, 1984. The letter sets out a purchase price
of $37,500 for Burke's stock, and provides that bonuses in the
amounts of $12,500 and $100,000 would be paid to Burke, for a
total to the estate of $150,000. It gives petitioner credit for
having already paid $6,382 against the $37,500 purchase price for
the stock and calls for a $30,757 note, with interest at the rate
of 14 percent and payments over a 2-year period. The letter
states that petitioner and Burke had agreed to pay excess INI
profits out in bonuses instead of allowing the profits to
accumulate with the corporation. Page 2 of the letter also calls
for Thorpe's signature to indicate agreement. Thorpe did not see
the November 30, 1984, letter until sometime in 1986. Thorpe
refused to sign the November 30, 1984, letter because the letter
was dated 1984 and misrepresented the arrangement between
petitioner and the estate. Petitioner told the IRS that the
November 30, 1984, letter constituted the actual reformation of
the buy-sell agreement. Petitioner admitted at trial that the
November 30, 1984, letter is not the actual agreement.
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