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On October 13, 1989, Mr. and Mrs. Thorpe executed an
agreement to purchase an office condominium in Kensington,
Maryland, for $165,000. The closing took place on April 18,
1990, and on the same day, Mr. and Mrs. Thorpe executed a
promissory note in the amount of $132,000, which note is
guaranteed by ETCO. The office condominium space consisted of
900 square feet, inclusive of storage space. The monthly payment
on the note was $1,341.75. Also, on April 18, 1990, Mr. and Mrs.
Thorpe and ETCO executed an agreement for the lease of the
Kensington office condominium from Mr. and Mrs. Thorpe to ETCO
requiring a monthly lease payment of $2,500 from ETCO to Mr. and
Mrs. Thorpe.
ETCO reported its taxable income and kept its books using
the cash method of accounting for the fiscal years in issue.
During the years 1988 through 1990, ETCO presented pension plan
contribution checks to Union Central Life Insurance Co. through
Mr. William Sloan, its insurance agent. When the checks were
presented to Mr. Sloan, he would compile data and send the
corresponding checks and data to the pension plan company. In
his capacity as a broker, Mr. Sloan was able to place business
with several different companies without specific attachment to
any one company.
In 1990, ETCO decided not to use Union Central Life
Insurance Co. as the insurance provider for its pension plan. In
an effort to find another insurer, ETCO contacted Mr. Sloan, who
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Last modified: May 25, 2011