Donald C. Richardson and Rita M. Allaire - Page 5

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               1.  Events Leading to Examination by Internal Revenue                  
               Petitioner had become friends with Edward Paige (hereinafter           
          Paige) in 1974.  In 1982, Paige formed Paige Communications                 
          Corporation, a California entity (Paige-Cal)3.  In 1983 a joint             
          venture was entered into between Paige-Cal and petitioners to               
          form PCCL.                                                                  
               At PCCL's inception, petitioner Allaire owned 375 shares of            
          the company, and Paige-Cal, through Paige, its president, owned             
          the remaining 125 shares.  During 1988, Paige-Cal's shares were             
          transferred to petitioner Allaire, who then became the sole                 
          shareholder of PCCL.  Petitioner was PCCL's president.                      
               In November 1992, petitioner hired Paige as a consultant to            
          PCCL.  However, by way of a letter dated October 1, 1993,                   
          petitioner Allaire advised Paige that his position at PCCL was              
          abolished effective October 29, 1993, and that his employment               
          with the company would cease on that date.                                  
               Subsequent to his termination from PCCL, Paige wrote a                 
          letter to the Internal Revenue Service (IRS) dated March 22,                
          1994.  This letter enumerated specific allegations against                  
          petitioners and PCCL.  Paige's allegations were premised upon               
          information he allegedly obtained while employed by PCCL.  Paige            

               3    The record does not reflect whether Paige-Cal was an              
          incorporated business as provided by California law.  For this              
          reason, we are referring to it as a California entity.                      

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