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the amount of debt for which they and the corporation were the
primary obligors.
FINDINGS OF FACT1
Petitioners Abdul and Rawnaq Hafiz are husband and wife and
timely filed joint Federal income tax returns for the years 1989
and 1990. Petitioners resided in North Jackson, Ohio, at the
time they filed their petition in this case.
In the late 1970's, petitioner Abdul Hafiz (Mr. Hafiz)
entered into a partnership to invest in the motel business. The
partnership owned and operated a Days Inn in Monroe, Ohio. In
1984, the partnership began experiencing severe financial
difficulties. Mr. Hafiz decided to purchase the motel from the
partnership in the hopes of turning it into a profitable
enterprise.
In 1985, Mr. Hafiz decided to form Family Motels, Inc.
(Family Motels), a corporation that elected to be treated as a
"small business corporation" under subchapter S. Mr. Hafiz was a
90-percent shareholder of Family Motels, and his family members
held the remaining shares. Family Motels was organized to
acquire and manage motels.
At the time of incorporation, it was necessary to borrow
funds to purchase the Days Inn in Monroe. Mr. Hafiz met with
1 The stipulation of facts and the attached exhibits are
incorporated by this reference.
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