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In addition to serving as an officer and signing documents for
Mary Catherine, petitioner occasionally acted as a secretary,
opened mail, answered phones, and picked out carpet or tile for
some model homes. Petitioner also occasionally worked as a part-
time dental assistant.
During 1989, Mary Catherine owned several unimproved
parcels of land including “the Ridge” in East Granby,
Connecticut, and “Minnechaug” in Glastonbury, Connecticut.
During 1989, the Connecticut real estate market experienced a
severe decline resulting in significant reductions in the values
of both the Ridge and Minnechaug. Because of severe declines in
the value of real estate, the Federal Deposit Insurance
Corporation (FDIC) required the banks holding mortgages on the
Ridge and Minnechaug to obtain new appraisals. The new
appraisals reflected lower values, and the banks were required to
reduce the stated values of the properties for regulatory
purposes. Similarly, Mary Catherine was expected to reflect the
reduction in the values of real estate on its financial
statements.
Following the advice of its accountants, Mary Catherine
reduced the value of the Ridge as reflected on its December 31,
1989, financial statements and the value of Minnechaug as
reflected on its December 31, 1990, financial statements. On its
1989 and 1990 Forms 1120S, U.S. Income Tax Return for an S
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