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and Paz; in addition, Davidson, Eagleson also kept the books and
functioned as in-house accountant for Paz.
In 1990, petitioner began contemplating sale of the Ranch.
Before doing so, because he believed that he had title to some of
the improvements and Paz had title to the remainder of the Ranch,
he wanted to get title in one name to facilitate sale.
Therefore, he decided to cause Paz to transfer the Ranch to him.
Petitioner discussed the idea of transferring the Ranch with
Audrey Kuntz (Kuntz), an accountant employed by Davidson,
Eagleson at that time. In April 1990, Kuntz wrote an agenda for
an upcoming meeting with petitioner, in which she noted a
question as to when petitioner was going to "purchase" the Ranch
from Paz. She met with petitioner in June 1990, and in her notes
of the meeting, she stated that petitioner planned to sell the
Ranch in about a year, that petitioner would "buy" the Ranch from
Paz, and that Davidson, Eagleson would draw up a 2-year demand
note for petitioner's "purchase" of the Ranch.
Another accountant at Davidson, Eagleson, Stephen Guerra
(Guerra), was responsible for reviewing petitioner's and Paz's
tax returns. Petitioner also met with Guerra in June 1990, and
they talked about the idea of petitioner purchasing the Ranch
from Paz, discussing sales price and financing. Petitioner
believed the fair market value of the Ranch was less than book
value, but Guerra suggested that he buy the Ranch at book value
to avoid a bargain sale characterization. With respect to a
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