Scott C. and Patricia A. Simpson - Page 6

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          testified about petitioners' practice of deducting the cost of              
          meals as "planning" sessions.  He stated that petitioners went to           
          restaurants to plan their weekly activities for the day-care                
          service.  He also testified that petitioners ate alone during a             
          majority of these meals.  Petitioners also deducted the cost of             
          personal meals as client "prospecting" activities.  Mr. Simpson             
          provided the Court with the following explanation for such                  
          deductions:                                                                 
                    THE WITNESS:  Meals and entertainment was                         
               basically that; we entertained people.  We went -- we                  
               would go to parks and see people with the children.  We                
               would walk up to and start talking to them, become --                  
               just be friendly, Your Honor, and we would, you know,                  
               take them out to dinner and discuss -- in '92,                         
               especially, basically, what they were looking for in a                 
               child care so we could better cater to the needs of                    
               what people wanted in child care, because we basically                 
               didn't have any idea, you know.                                        
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                    THE COURT:  $6,000 worth of meals in '92, and                     
               $14,000 worth of meals in '93?                                         
                    THE WITNESS:  Well, $14,000 is -- we added                        
               something to it instead of just meals, Your Honor.                     
               It's also meals and entertainment, and we'd line itemed                
               in there I think it's approximately $2,000 worth of                    
               video rentals for the year of '93, for, you know,                      
               watching Disney and the things that we had to rent                     
               movies and things of that nature.                                      
                    THE COURT:  You rented $2,000 worth of videos?                    
                    THE WITNESS:  Yes, Your Honor, it goes pretty                     
               fast.  You know, you rent two or three videos a day or                 
               every other day, it adds up over a year's time, yes.                   
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