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amount shown as applied to the SWAS account by the IRS. On each
of exhibits A, B, and C the difference between the total dollar
amount of all checks written by SWAS and the total dollar amount
shown as applied to the SWAS account by the IRS is the amount
petitioners claim Mr. Kanz embezzled. According to exhibits A,
B, and C, the missing amounts that petitioners claim Mr. Kanz
embezzled were $93,740.11 in 1984, $17,412.91 in 1985, and
$75,022.57 in 1986, for a total of $186,175.59.
In April 1991, when the complaint in SWAS v. Kanz was filed,
petitioners believed there was a reasonable prospect of some
recovery from Mr. Kanz; they thought he was the only child of a
wealthy family with extensive land holdings. He also had several
childless aunts and uncles. Petitioners believed Mr. Kanz would
receive substantial inheritances when his parents and his aunts
and uncles died.
SWAS v. Kanz was settled without trial. On September 28,
1993, an agreed judgment (the agreed judgment) was entered. The
agreed judgment provided that SWAS “is entitled to recover
judgment of and from Defendant [Alan Kanz] the sum of $186,175.59
for conversion of [Form] 941 payroll taxes intended to be paid to
the Internal Revenue Service.”
At the time of the agreed judgment, Mr. Grothues and Mr.
Kanz executed a collateral agreement (the collateral agreement),
which provided that Mr. Grothues would not attempt to collect
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