Beals Bros. Management Corp. - Page 3

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          Nor during that time did petitioner pay its officers any                    
               Petitioner established the MGMT ESOP on February 1, 1987.              
          By way of a trust agreement of the same day, petitioner also                
          established under Iowa law a trust (ESOT) that was part of the              
          MGMT ESOP.  Under the MGMT ESOP, petitioner made contributions to           
          the ESOT for the purpose of distributing the trust’s corpus and             
          income to petitioner’s employees or their beneficiaries in                  
          accordance with the MGMT ESOP.  Under the trust agreement, the              
          ESOT’s corpus and income could not be used for purposes other               
          than the exclusive benefit of petitioner’s employees or their               
          beneficiaries.  At all relevant times, the only participants of             
          the MGMT ESOP were the management officers.                                 
               The MGMT ESOP owned all of petitioner’s stock as of June 30,           
               On July 8, 1987, petitioner purchased all of the stock of              
          MFG from its then-current shareholders.  MFG is an Iowa                     
          corporation engaged in the business of manufacturing wood                   
          products.  MFG operates a sawmill and manufactures commercial               
          packaging wood products, such as pallets and crating materials.             
          It also finishes graded lumber used for the construction of                 
          furniture and other finished items.  During MGMT ESOP’s plan year           
          ended June 30, 1987, MFG had at least 45 employees, 39 of whom              
          were part time and at least 6 of whom were full time.  The full-            

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