Wayne A. McFadden - Page 5




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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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