Roy G. and Dorothy M. Welker - Page 3

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          Mr. Welker, who had a high school education, prepared                        
          petitioners' tax returns for each of the years in issue.1                    
               Mr. Welker worked at Miller-Senate Finance Co. (Miller-                 
          Senate) as the office manager/loan officer.  As such, he ran the             
          day-to-day operations of Miller-Senate.  His duties included:                
          (1) Approval of vehicle loans; (2) preparation of documents                  
          relating to such loans; (3) arrangement of credit lines; and (4)             
          collection and repossession activities.                                      
               Virtually all of the loans Mr. Welker approved on behalf of             
          Miller-Senate were loans for cars purchased from Bob Brockland               
          Pontiac-GMC (Brockland Pontiac).  Brockland Pontiac utilized                 
          Miller-Senate for the financing of new and used cars sold to high            
          risk customers.2  Miller-Senate obtained these high risk loans               
          (the high risk loans) by purchasing chattel mortgage contracts               
          from Brockland Pontiac.  Miller-Senate lost approximately                    
          $300,000 on these loans.                                                     
               Mr. Welker and Brockland Pontiac had an arrangement whereby             
          Brockland Pontiac made payments to Mr. Welker in the amount of               
          $100 in cash for each high risk loan Mr. Welker purchased on                 

               1  Unless otherwise indicated, all descriptions refer to the            
          1984, 1985, 1986, and 1987 tax years.                                        
               2  High risk customers were those who could not qualify for             
          conventional financing through banks and dealer financing.                   

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