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value of the property at a minimal labor cost. Stephanie and
David told petitioner that David would make approximately 80
percent of the improvements in exchange for $1,000 per month.
Petitioner concluded that the loan to Stephanie and David would
give the plan an opportunity to earn a 12-1/2 percent return.
Petitioner agreed to lend Stephanie and David funds from his
profit-sharing plan for part of the purchase price and all the
subsequent improvements to the Atascadero property.
In January 1990, petitioner, as the plan’s fiduciary, made
the first in a series of 33 loans totaling $160,701 to Stephanie
and David from his profit-sharing plan. The purpose of the loans
was to make the downpayment on residential property in
Atascadero, California, and postacquisition improvements. The
loans were made over an 18-month period beginning in January 1990
and ending in August 1991. The amounts of the loans varied from
$500 to $23,000. Petitioner believed that his only recourse in
the event of default would be to the Atascadero property.
On February 14, 1990, Stephanie and David purchased a
single-family residence in Atascadero, California, for $225,000,
with Stephanie acquiring an 80-percent interest and David a 20-
percent interest. The residence had two bedrooms, three
bathrooms, and was situated on 3.3 acres of land. Stephanie and
David financed the purchase of the Atascadero property by
obtaining a $180,000 loan from the Great Western Bank (the Great
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