Stephen F. Scofield and Nancy E. Scofield - Page 5

               In 1978 and 1979, Northeast established a line of credit               
          with Guaranty Bank & Trust Company (the bank) in Massachusetts.             
          McKee signed a guaranty dated March 3, 1978, for the line of                
          credit.  Northeast used its assets as collateral for the loan.              
          In December 1979, the bank lent about $1.2 million to Northeast             
          on the line of credit.  Petitioner signed a guaranty with the               
          bank around January 11, 1980.  Northeast used its line of credit            
          with the bank to take title to paper when it was advantageous to            
          do so.                                                                      
               Northeast had retained earnings of $107,058.15 on December             
          31, 1978, and $183,747.33 on December 31, 1979.  At the end of              
          1979, petitioner submitted a financial statement to the bank in             
          which he estimated that the value of his interest in Northeast as           
          a going concern was about $1 million.                                       
               Zayre Corp. (Zayre) was a customer of Northeast.  Northeast            
          contracted to sell paper to Zayre.  Consolidated Newsprint, Inc.            
          (CNI) produced and sold paper for newsprint and newsprint                   
          advertising and contracted to regularly sell products to                    
               3.   Sigma General, Inc.                                               
               Petitioner owned all of the stock of Sigma General, Inc.               
          (Sigma), a New Hampshire corporation he formed in 1978.  Sigma              
          placed orders for printing advertising material to be distributed           
          by newspapers.  In 1979, Sigma placed orders totaling about $10             
          million.  Petitioner estimated that the value of his interest in            

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