Michael Graham - Page 4

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          enough below its $630,000 tax assessment value that it would                
          allow the Foundation a substantial profit.                                  
               In 1992, petitioner entered into a plea bargain relating to            
          the Federal income tax evasion indictment.  The plea bargain                
          required him to pay fines and back taxes of $135,000.  Pursuant             
          to the purchase agreement, on June 3, 1993, Mr. Hofheinz                    
          transferred to petitioner an additional $135,000 of Foundation              
               Petitioner and Mr. Hofheinz’s relationship deteriorated in             
          1995.  In 1996, after Mr. Hofheinz began proceedings to evict               
          them from the residence, Mrs. Graham filed a bankruptcy petition.           
          In the bankruptcy proceeding, Mrs. Graham contended that the sale           
          was invalid because petitioner had no interest in the residence             
          owned by Bluff Creek and, therefore, could not sell it.                     
               Although a backdated document (i.e., signed by Mr. Hofheinz            
          and petitioner sometime after June 3, 1993) stated that the                 
          $135,000 payment was for the Grahams’ furniture, the furniture              
          remained in their possession.  During Mrs. Graham’s bankruptcy              
          proceeding, the Foundation did not file a claim relating to the             
          furniture, and Mr. Hofheinz testified that the additional                   
          $135,000 was consideration provided to the Grahams in exchange              
          for the residence.  The bankruptcy court concluded that the 1992            
          transaction was a sale of the residence to the Foundation but did           
          not determine what constituted the consideration exchanged for              

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