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FINDINGS OF FACT
The parties have stipulated some of the facts, which are
incorporated in our findings by this reference. Petitioners
resided in Huntsville, Alabama, when the petition was filed.
Petitioners filed joint Federal income tax returns for each of
the years at issue.
In 1983, petitioner husband (hereinafter petitioner) and his
father incorporated Pacer Industries, Inc. (Pacer), an Alabama
corporation. Petitioner was the principal stockholder and
managed the business, while also engaging in the practice of law.
Pacer manufactured vending machines in Fyffe, Alabama, employing
on average 20-30 persons and servicing as many as 30-40
customers.
In early 1987, Pacer ceased operations in Fyffe when the
City of Fyffe locked the doors and put a lien on the building
because Pacer was delinquent in paying its rent. In September
1987, some of Pacer’s manufacturing equipment was moved from
Fyffe to a building then being leased by Idea Technologies, Inc.
(Idea Technologies), in Huntsville, Alabama. In late 1987,
petitioner negotiated with John Ford, who was general manager of
one of Pacer’s customers, Management Marketing Consultants, to
manufacture 600 to 800 vending machines. Stan Rowe was hired to
oversee a crew of several contract-basis workers and an Idea
Technologies employee. After delivery of approximately 400
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