Thomas H. Scott and Lynn D. Scott, Transferees - Page 23

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               The Service's revenue agent auditing MSSTA's 1989 return               
          preliminarily proposed, inter alia, that MSSTA realized $1.6                
          million on that sale and that MSSTA was liable for certain                  
          penalties.                                                                  
               Attached to petitioners' 1991 return, which was filed on               
          August 4, 1992, was a statement, entitled "DISCLOSURE STATEMENT             
          OF TRANSACTION BETWEEN THOMAS H. AND LYNN D. SCOTT ("TAXPAYERS")            
          AND AMERICAN SECURITIES TRANSFER, INC. ("AST")", which stated in            
          pertinent part:                                                             
               On June 27, 1991, the taxpayers' 12,300 shares of                      
               common stock of AST were redeemed by the corporation,                  
               AST. * * *                                                             
                     *     *     *     *     *     *     *                            
               The 12,300 shares of AST stock sold have a cost basis                  
               of $749,760.  This basis represents the value assigned                 
               to AST shares as determined by the Internal Revenue                    
               Service in their examination of Mountain States Stock                  
               Transfer Agents, Inc. (MSSTA) * * * for tax year 1989.                 
               Around January or February 1992, petitioners retained J.               
          William Callison (Mr. Callison) to represent MSSTA and themselves           
          with respect to the Service's examination of the MSSTA trans-               
          action.  Mr. Callison participated in settlement negotiations               
          with Service representatives regarding its examination of the               
          MSSTA transaction.  On December 23, 1994, Form 906-C, Closing               
          Agreement on Final Determination Covering Specific Matters                  
          (closing agreement), was entered into by the Service, Mr. Carter,           
          Mr. Scott, Ms. Scott, MSSTA, and AST.  The closing agreement,               





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