FRGC Investment, LLC, James P. Mehen, Tax Matters Partner - Page 4




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          buildings.  Walker was assured by the Coconino County planning              
          director that, although the current Zoning Department probably              
          would not allow 1,596 units to be built on the property, locating           
          a golf course in and around the dry lake area of the property               
          would not present a problem.                                                
          Real Estate Purchase Agreements                                             
               On December 29, 1995, PCB or its nominee entered into a real           
          estate purchase agreement (1995 purchase agreement) with Cherry             
          for the purchase of approximately 240 acres of the subject                  
          property.  Petitioner intended that once FRGC was formed, FRGC              
          would become PCB’s nominee for the purchase agreement.                      
               PCB deposited $25,000 with First American Title Co. to open            
          escrow on the real estate transaction.  On March 14, 1996, PCB              
          advised Cherry of objections to numerous survey and other title             
          report exceptions for the subject property.  On April 15, 1996,             
          escrow for the 1995 purchase agreement was canceled.                        
               On August 14, 1996, PCB entered into a second real estate              
          purchase agreement (1996 purchase agreement) with Cherry for the            
          purchase of the entire 404 acres of subject property.  The sale             
          also included Cherry’s interest in the Flagstaff Ranch Water Co.            
          PCB deposited $5,000 with First American Title Co. to open escrow           
          on the real estate transaction on August 30, 1996, and deposited            
          an additional $20,000 on November 26, 1996.  The 1996 purchase              
          agreement required closing escrow on or before December 31, 1997.           






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