Michael C. Hollen and Joan L. Hollen - Page 6




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          liability was calculated using the information from petitioner’s            
          Schedule K-1.                                                               
               In July 1989, petitioner filed his P.C.'s Federal income tax           
          return for the fiscal year ended October 31, 1988.  This return             
          was also prepared by Mr. Fettkether.  It did not include any gain           
          from the sale of the ranch or income from the partnership.                  
               In October 1989, petitioner filed an amended corporate                 
          income tax return for the P.C.  The amended return was prepared             
          by a different return preparer, John Henss.  It contained the               
          following statement:                                                        
               Reason for Amended Return.                                             
                    On August 1, 1988 it was the intent of Michael C.                 
               Hollen to transfer to Michael C. Hollen, D.D.S., P.C.                  
               certain investment assets including an interest in                     
               Bluebird Ranch, a partnership.  That partnership equity                
               was in a deficit position.  It was the intent of the                   
               parties that Michael C. Hollen would issue his note                    
               payable to Michael C. Hollen, D.D.S., P.C. in an amount                
               equal to the deficit in Bluebird Ranch which was                       
               assumed by Michael C. Hollen, D.D.S., P.C. over the                    
               value of the other assets assumed by Michael C. Hollen,                
               D.D.S., P.C.  Due to a scrivener error the assumption                  
               of the Bluebird Ranch deficit was not recorded in the                  
               corporate records.  Upon detection of said scrivener                   
               error the verbal agreement was confirmed and made a                    
               matter of record.[5]                                                   

               5At trial, petitioner testified that he took steps to                  
          protect petitioners’ personal assets in the event that Mr. and              
          Mrs. Lentz foreclosed on the note and obtained a judgment against           
          petitioners.  Specifically, petitioner claimed that, in August              
          1988, petitioners transferred most of their personal assets to              
          his P.C. in connection with the establishment of an Employee                
          Stock Ownership Plan (ESOP).  Although petitioner testified that            
                                                             (continued...)           





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