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1954. They separated in the fall of 1985, and on April 6, 1989,
they entered into a Separation Agreement, Support and Property
Settlement (Separation Agreement).
Under the Separation Agreement, Ferrentino was obligated to
pay Carol $376,000 over 8 years. Specifically, Ferrentino was
required to pay Carol Ferrentino $22,000 per year from 1989 to
1992, and was thereafter obligated to pay at least $22,000 per
year until the remainder of the obligation was satisfied.
Ferrentino has not paid all the amounts reflected in the
Separation Agreement. At various times between 1989 and 1991,
Ferrentino asked Carol to modify their Separation Agreement, or
forbear his obligation to pay the required amounts. Ferrentino
told Carol that she would recognize a greater return on her money
if she allowed Ferrentino to keep the funds owed invested in AJF.
Their divorce became final on May 4, 1990.
AJF is a New York corporation with principal offices in
Williamsville, New York, at the time the petitions were filed.
AJF is involved in the business of furniture delivery and is a
cash receipts and disbursement method taxpayer. AJF's employees
were mainly drivers, helpers for loading, helpers for drivers of
home deliveries, and tractor-trailer drivers.
During the years in issue, AJF earned income by performing
services for J.C. Penney Company, Inc. (J.C. Penney), pursuant to
a Delivery Service Agreement (Contract) dated March 6, 1987. The
Contract required AJF to deliver furniture to customers of J.C.
Penney and transport furniture for J.C. Penney from various
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