Richard J. Salem and Eileen L. Salem - Page 5

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          neither Mr. Salem nor Mrs. Saxon pledged any personal assets to             
          secure SS&N's debt to the bank.                                             
               SS&N was a C corporation from 1981 through September of                
          1989.  On December 15, 1989, SS&N elected to be an S corporation            
          effective as of October 1, 1989.                                            
               The accounting firm of Laventhol & Horwath (L&H) prepared              
          the corporate income tax return for SS&N for the taxable year               
          ending December 31, 1989.  Eileen Sharkey of L&H sent the                   
          following letter dated September 6, 1990, to Mr. Salem:                     
               Dear Richard:                                                          
                    In preparing the corporate income tax return for                  
               the period ended December 31, 1989 for Salem, Saxon and                
               Nielsen, P.A., we have discussed various issues with                   
               Bernice.  This letter covers one particular tax item of                
               significance, principally to you.                                      
                    On December 31, 1989, the professional association                
               had loans outstanding of approximately $710,000 payable                
               to the Bank of Tampa.  It is our understanding that the                
               loans were made to Salem, Saxon and Nielsen, P.A., with                
               your personal guarantee.  The issue is the Internal                    
               Revenue Service's lack of recognition of a guarantee as                
               part of tax basis as further discussed below.  As you                  
               know, the professional association has incurred a loss                 
               of $43,330 for the year ended December 31, 1989.  Your                 
               share of the loss is approximately $37,000 and                         
               represents a tax benefit on your individual return of                  
               approximately $12,000.  By taking a tax position                       
               contrary to the Internal Revenue Service, your return                  
               is subject to controversy.                                             
                    Subchapter S Corporation losses that pass through                 
               to the shareholders are fully deductible only to the                   
               extent that the shareholders have basis in the S                       
               Corporation stock, plus basis in their loans to the S                  
               Corporation (Internal Revenue Section 1366(d)(1)).                     
               Applying this provision to Salem, Saxon & Nielsen,                     
               P.A., your current basis would be de minimis, and your                 




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