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Mr. Knauss put TECO’s accounting system in place. Sometime
after Mr. Knauss retired, Vernon hired Patrick Allison, C.P.A.
(Mr. Allison), to prepare TECO’s income tax returns for the years
in issue. At the time, Mr. Allison was the only C.P.A. located
in Grand Saline, Texas.6
In order to prepare TECO’s tax returns, Mr. Allison was
given ledgers, summaries, bank statements, and canceled checks.
Mr. Allison had full access to TECO’s employees and could ask
them any questions relating to the preparation of TECO’s tax
returns.
Neither Vernon nor Janet had an advanced knowledge of
taxation. Vernon graduated from high school and attended Tyler
Junior College for one semester. Vernon never took any
5(...continued)
In 1985, Ms. Culpepper transferred 185 shares of her TECO
stock to Janet. Janet then transferred 92 shares of her TECO
stock to Vernon. At this time, Bernie owned 47.14 percent of
TECO, Ms. Culpepper owned 26.43 percent of TECO, Janet owned
13.29 percent of TECO, and Vernon owned 13.14 percent of TECO.
Later that year, TECO purchased 329 shares of its stock from
Bernie, and Vernon purchased 1 share of TECO stock from Bernie
giving Vernon a total of 93 shares of TECO stock. At this time,
Ms. Culpepper owned 49.86 percent of TECO, Janet owned 25.07
percent of TECO, and Vernon owned 25.07 percent of TECO.
Although at this time there was no single majority
shareholder, if Janet and Vernon decided to combine their voting
power they could outvote Ms. Culpepper--i.e., Janet and Vernon
together owned 50.14 percent of TECO. As a result, Ms. Culpepper
sued Vernon, Janet, and TECO to gain control of the company.
6 From 1976 through part of 1989, TECO’s manufacturing
plant was located in Grand Saline, Tex.
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