Allen C. Chamberlin and Martha L. Chamberlin - Page 4

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          and 1993, respectively.  Petitioners prepared their returns with            
          the help of a certified public accountant.                                  
               Pharmacare, Inc. (Pharmacare), was a Delaware corporation              
          engaged in the business of manufacturing unit dose pharmaceutical           
          products and packaging cosmetic products and lotions.  The main             
          manufacturing facility for Pharmacare was located in Largo,                 
          Florida (Largo facility).                                                   
               During 1978, Pharmacare was in serious financial difficulty            
          and was looking for investors to provide working capital for the            
          company.  A group of investors led by Stelios Vavlitis (Vavlitis)           
          agreed to invest funds in Pharmacare in exchange for a                      
          controlling interest in the outstanding stock of the corporation.           
          Vavlitis planned to rebuild Pharmacare under his management and             
          to attract other investors to provide working capital.  Vavlitis            
          created Pharmaco Trust, which bought an 87.6-percent interest in            
          the outstanding stock of Pharmacare and held the acquired stock             
          for management and sales purposes.  Vavlitis was made president,            
          chief executive officer, and chairman of the board of directors             
          of Pharmacare.                                                              
               In 1978, Vavlitis persuaded petitioner to purchase three               
          units of Pharmaco Trust for $99,000.  In doing so, Vavlitis made            
          material false representations and misstatements about his prior            
          business experience, his educational background, Pharmacare’s               

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