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Also throughout the years in issue, petitioner worked 40 or
more hours per week at SRMC and received a salary for his
services. Petitioner Mrs. Wesinger was likewise employed by SRMC
during these years and was compensated for her work as the Human
Resources manager. However, during the period following
petitioner’s decision to embark upon a ranching venture, SRMC
began experiencing business reverses. An audit by the IRS and a
subsequent bank audit disrupted the company’s operations and
culminated in 1993 with the bank calling its outstanding loan to
SRMC of $2.8 million. SRMC was forced to seek sources of short-
term credit and eventually paid the debt in 1997. Meanwhile, in
1994, petitioner began the process of changing SRMC’s primary
line of business from custom hardware to Internet-related
software. Several patents dealing with this software either have
been issued to petitioner or are pending, and petitioner expects
the new technology to generate a profit in the future. As of
early 1999, SRMC (now known as NES) was not making money.
Yet another event affecting petitioners’ economic situation
during the years at issue was a hurricane which damaged property
they held in Hawaii. The damage occurred in late 1992 and
necessitated that time be spent in Hawaii during the following
winter, but the situation was largely resolved by the spring of
1993.
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