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Notwithstanding the representations in the Confidential
Private Placement Memorandum, “key man insurance” was obtained at
some point.4 KOA was the beneficiary of the policy, and while
not required by KOA, petitioners paid the insurance premiums on
the key man insurance policy.
In August 2001, KOA merged with e-Redeem, Inc., a Delaware
corporation in which petitioner Brody served as President. In
letters to shareholders of KOA dated May 31, 2001, petitioner
Brody proposed that said shareholders would receive an aggregate
of 49.568 percent of the fully diluted capital stock of the
merged entity.
Petitioner Brody, who has a background in accounting,
prepared KOA’s Form 1120-A, U.S. Corporation Short-Form Income,
for the 1999 taxable year (1999 corporate return). KOA claimed
deductions for repairs and maintenance of $13,186 and for rents
of $44,762. KOA did not report any loans from shareholders.
Petitioner Brody also prepared petitioners’ Form 1040, U.S.
Individual Income Tax Return, for the 1999 taxable year (1999 tax
return). Petitioners did not file a Form 4797, Sales of Business
Property, with their 1999 tax return.
4 The parties did not provide the Court with a copy of the
insurance policy.
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