Thomas J. Rosser - Page 4




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               In 1987, petitioner organized two S corporations:  Living              
          Care Alternatives of Kirkersville, Inc. (LCAK), and Living Care             
          Alternatives of Utica, Inc. (LCAU).  Petitioner transferred                 
          ownership of the Kirkersville Nursing Home to LCAK and ownership            
          of the Utica Nursing Home to LCAU.  After the transfers, he                 
          remained responsible for repaying the funds that he had borrowed            
          to acquire the nursing homes.  LCAK and LCAU never paid dividends           
          or made other distributions to petitioner as a shareholder.  LCAK           
          and LCAU had no accumulated earnings and profits in 1993 and                
          1994.                                                                       
               Petitioner, as president of the S corporations, signed                 
          promissory notes in which he agreed to pay himself and his former           
          wife $576,130.42 on April 1, 1987, and $700,000 on October 8,               
          1987.                                                                       
               On October 8, 1987, petitioner and his former wife borrowed            
          $500,000 from County Savings Bank.  Petitioner paid $450,000 to             
          Braddock to repay her for financing the Utica Nursing Home                  
          purchase.  He used the rest to renovate the Utica Nursing Home.             
               2.   Management                                                        
               Petitioner bought the nursing homes so that he could earn              
          income from operating them and to provide a job for his then-               
          spouse.  Petitioner planned to earn a fee for managing the                  
          nursing homes and for his wife to earn a salary for serving as              
          the administrator of the nursing homes.  Petitioner hoped to sell           






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