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General Motors (GM) Institute and received a degree in mechanical
engineering in 1966. During the next 15 years, he worked as an
engineer for GM Corp. He married Susan Barnard (Ms. Barnard) on
February 14, 1981. Ms. Barnard is a registered nurse.
Petitioners owned property in Charlevoix on which they
constructed a facility that included a restaurant and bar
(collectively, the restaurant) and a 12-room motel (motel).
Petitioners began operating the restaurant and the motel in late
1982 as unincorporated businesses and incorporated those
businesses in the middle of 1986 under the name Nanny's, Inc.
(Nanny's).1 For the remainder of 1986 throughout the end of
1988, Nanny’s operated as a C corporation that reported its
income and expenses for Federal income tax purposes on the basis
of the calendar year. Nanny's elected to be treated as an S
corporation effective with its taxable year beginning on January
1, 1989.
Ms. Barnard oversaw Nanny’s daily operation. Nanny’s
received most of its income in cash, and petitioners deposited
Nanny’s receipts into a cash register. Each morning, Ms. Barnard
reconciled the cash in the register to the cash register tape of
Nanny’s business for the previous day. Afterwards, petitioners
left some of the cash in the register for the current day's
1 Petitioners’ basis in their Nanny’s stock was $10,000 upon
incorporation and at all relevant times thereafter (except to the
extent that their basis is reduced pursuant to this report).
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