Michael A. McGrath and Frances Y. McGrath - Page 7




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          Petitioners, TUP 130, and TUP 130's management company were to be           
          insureds under the public liability policy.  Petitioners were               
          also responsible for paying all municipal, county, State, and               
          Federal taxes assessed against their leasehold interest,                    
          fixtures, furnishings, equipment, stock-in-trade, and other                 
          personal property of any kind owned, installed, and existing in             
          the Store Space.                                                            
          B.  The Franchise Agreement                                                 
               On August 23, 1995, petitioners and T.J. Cinnamons, Inc.,              
          executed the Franchise Agreement, authorizing petitioners to                
          operate a T.J. Cinnamons franchised bakery at the Store Space.              
          The initial term of the Franchise Agreement was 10 years.                   
          Pursuant to the Franchise Agreement, petitioners paid to T.J.               
          Cinnamons, Inc., an initial franchise fee of $17,500.                       
          (Petitioners concede that the $17,500 franchise fee must be                 
          capitalized and amortized over a period of 15 years, as in the              
          notice of deficiency.)                                                      
          C.  The Construction Contract                                               
               As of November 1, 1995, petitioners and Regional Development           
          & Building Inc., executed the Construction Contract for the                 
          Improvements.  Petitioners performed the construction required              
          under the Lease during the period from September through December           
          1995.                                                                       








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