Ronald L. DeVault - Page 4

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          aircraft parts.  Petitioner and Mr. Turner each made initial                
          capital contributions to Union Machine.  Petitioner contributed             
          $12,000 of inspection equipment and granite,3 and Mr. Turner                
          transferred his personally owned equipment.  Mr. Turner became              
          president of Union Machine, and petitioner became vice                      
               On January 10, 1996, Union Machine filed with the Internal             
          Revenue Service (IRS) a Form 2553, Election by a Small Business             
          Corporation, to be treated as an S corporation, which the IRS               
          accepted effective January 2, 1996.5  Since then, Union Machine             
          has operated as an S corporation on a calendar year basis.  The             
          Form 2553 listed the shareholders as follows:                               
                              Date of                                                 
               Name                Shareholder Consent    No. shares1 Date            
               Philip L. Turner6/28/95           51        1/2/96                      
               Ronald L. DeVault       6/28/95  49        1/2/96                      
               Gigi DeVault2  9/29/95           --        1/2/96                      
               1At all relevant times, the number of shares owned by each             
               shareholder has remained the same.                                     
               2  At the time of the S corporation election, Gigi DeVault (Mrs.       
               DeVault) was petitioner’s spouse.                                      
               After the formation of Union Machine, Mr. Turner resigned              
          from Modern to manage Union Machine’s day-to-day operations.                
          Petitioner, on the other hand, continued to work full time at               

               3  Petitioner obtained a personal loan from Household                  
          Finance to purchase these items.                                            
               4  At all relevant times, Mr. Turner has remained president            
          of Union Machine.                                                           
               5  We note that Form 2553, Election by a Small Business                
          Corporation, incorrectly listed Union Machine’s date of                     
          incorporation as Jan. 2, 1996.                                              

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