Alan G. Bone and Kathleen A. Bone - Page 5




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          providing management services to the four affiliates, plus a                
          markup percentage in the 3-percent range.                                   
               AJCS was entitled to receive the management fees at the time           
          the affiliates completed the contracts.  All four affiliates used           
          the completed contract method to report income for Federal tax              
          purposes.  For the affiliates’ tax years ending in 1993, they               
          reported gross income as follows:                                           
               Affiliate             TYE          Gross Income                        
               West             Sept. 30, 1993     $2,394,029                         
               Georgia          Sept. 30, 1993      5,962,994                         
               Central          June 30, 1993           -0-                           
               East             Mar. 31, 1993          76,116                         
               Georgia deducted $490,000 as management fees paid to AJCS on           
          its September 30, 1993, tax return.  Central deducted $724,880 as           
          management fees paid to AJCS on its June 30, 1994, tax return.              
          AJCS did not report any management fee income on its 1993 tax               
          return.                                                                     
               The four affiliates extended loans to AJCS during the 1993             
          calendar year.  As of the end of the 1993 tax year, the                     
          affiliates had outstanding loans to AJCS as follows:                        
                    Affiliate           Loan Amount                                   
                    West                -0-                                           
                    Georgia             $1,674,722                                    
                    Central             568,065                                       
                    East                80,201                                        
               AJCS reported taxable income of $117,018, $358,860, and                
          $309,967 for the 1990, 1991, and 1992 tax years, respectively.              
          AJCS’s and the four affiliates’ “schedule of contracts” for the             






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