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FINDINGS OF FACT
The parties have stipulated some of the facts, which are
incorporated in our findings by this reference. When they filed
their petition, petitioners were married and resided in
Montgomery, Alabama. Subsequent to filing the petition,
Caroline R. Sellers died. The Estate of Caroline R. Sellers has
been substituted as a party.
Petitioner’s Background
Since 1947, petitioner has been in the investment banking
business, making loans to companies and individuals. Since at
least 1968, petitioner has made loans through his sole
proprietorship, Continental Mortgage Co. (Continental Mortgage).
Petitioner is also a 75-percent shareholder of Philip A.
Sellers & Co., Inc. (PASEL), which engages in investment banking.
His son, Philip L. Sellers (Philip), owns the remaining 25
percent of PASEL. PASEL owns all the stock of Merchant Capital
Corp. (Merchant Capital), an investment banking business with a
concentration in municipal type business.
The Gandy’s Acquisition
In 1987, PASEL acquired a 67-percent ownership interest in
Kenneth H. Bauer & Associates, Inc. (KHB), a newly organized
Georgia corporation formed for the purpose of acquiring interests
in existing businesses, including Gandy’s Industries, Inc.
(Gandy’s), a Georgia corporation that manufactured pool tables
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