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according to generally accepted accounting principles to provide
adequate, detailed information to the buyer and were to include
applicable tax returns. During escrow, Mr. Meglin provided
petitioners with income and expenses statements for the Truckee
Hotel for 1988, 1989, and 1990. He also provided MHP’s
partnership returns for 1988 and 1989 but not for 1990 because
that return had not yet been filed. Petitioners did not hire an
appraiser to look at the property or anyone who was familiar with
the hotel industry to look at the books of the hotel during this
time.
Petitioners noticed that there were inconsistencies between
the financial information contained in the advertising brochure
and the financial information provided by Mr. Meglin during
escrow. For example, the advertising brochure overstated the
1988 and 1989 net income. Additionally, although the income and
expense statements provided included no repair expenses, MHP had
claimed expenses for repairs on its partnership tax returns.
After corresponding with Mr. Meglin concerning the
inconsistencies, petitioners ultimately proceeded with the
purchase on the terms previously agreed to by the parties. The
sale of the Truckee Hotel to petitioners closed on April 4, 1991.
Petitioners paid a portion of the purchase price in cash and
executed a promissory note for the balance of $870,000.
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