Terrell Equipment Company, Inc., et al. - Page 5

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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                
               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                     

               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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