Michael T. Caracci and Cindy W. Caracci, et al. - Page 13




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          regular accountant, Danny Hart (Hart), also recommended that the            
          Sta-Home tax-exempt entities convert to nontax-exempt status.               
               Kirkland retained a tax attorney named James Pettis (Pettis)           
          to help Kirkland convert the Sta-Home tax-exempt entities into              
          for-profit entities.  Subsequently, Pettis learned that                     
          Kirkland’s firm had not obtained an appraisal for any of its                
          previous conversions.  Pettis informed Kirkland that Pettis                 
          “strongly [disagreed]” with that approach.  By letter dated July            
          7, 1995, Kirkland’s firm retained Hart’s accounting firm to                 
          appraise the Sta-Home tax-exempt entities’ net assets as of a               
          proposed transaction date of October 1, 1995.                               
               The appraisal was slow in coming.  Pettis, the tax adviser,            
          insisted on seeing the appraisal before proceeding with any                 
          transaction that would effect a conversion.  After reading the              
          appraisal, Pettis was concerned that it failed to deal with                 
          issues concerning intangible assets.  He believed that the mere             
          fact that an entity had lost money or had a negative cashflow did           
          not mean that the entity was worthless.  He also was concerned              
          that the appraisal failed to address Rev. Rul. 59-60, 1959-1 C.B.           
          237, where the Commissioner has set forth standards on valuation            
          for Federal income tax purposes.  Upon Pettis’s request, he                 
          received a second appraisal.  Because some of his concerns as to            
          intangible assets remained after reading the second appraisal, he           








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