Michael Graham - Page 3




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          the Foundation, which was created in 1983, out of the trust                 
          created by his mother’s will.  As of the end of 1992, the                   
          Foundation had received contributions and bequests of $2,371,589.           
          Mr. Hofheinz participated in several of petitioner’s business               
          deals.  Beginning in mid-1992, Mr. Hofheinz also made several               
          unsecured personal loans to petitioner, totaling more than $1               
          million (i.e., ranging from $20,000 to $352,137).                           
               On September 28, 1992, petitioner was indicted for Federal             
          income tax evasion.  After the indictment, petitioner needed                
          $200,000 to pay his attorney.  He sought, but Mr. Hofheinz was              
          unwilling to extend, another unsecured personal loan to                     
          petitioner.  Petitioner and Mr. Hofheinz, however, entered an               
          oral purchase agreement (agreement) for the Foundation to                   
          purchase the residence.  At Mr. Hofheinz’s direction, the                   
          Foundation purchased the residence, which had a fair market value           
          of $535,000.  The agreement provided that in exchange for the               
          residence petitioner:  (1) Would receive $250,000 to pay his                
          criminal attorney and other debts; (2) could later ask for, and             
          receive, an additional $135,000; and (3) could continue to live             
          in the residence rent-free for 3 years.  Petitioner was                     
          responsible for payment of taxes and insurance on the residence,            
          but he failed to pay the 1993 property taxes.                               
               Mr. Hofheinz believed that purchasing the residence was a              
          good deal for the Foundation and that the purchase price was far            






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