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1. Events Leading to Examination by Internal Revenue
Service
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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