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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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Last modified: May 25, 2011