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market, which was, at that point, just opening to foreign
investment after the collapse of the Soviet bloc. Accordingly,
petitioner and Evans formed J.E. Stallion-Russia, Inc. (Russia).
Russia became involved in selling contact lenses, operating
sausage factories, and exporting timber from Russia to Japan.
As a third venture, petitioner and Evans incorporated J.E.
Stallion International Gallery, Inc. (Gallery) to operate an art
gallery and to purchase, sell, and exhibit works of art on a
national and international basis. Gallery was also established
to enter into domestic and foreign ventures to carry out these
activities.
When the Management Company, Gallery, and Russia
(collectively the companies) were formed, petitioner offered
Evans a 50-percent ownership interest in each because he “had an
incredible amount of faith in [Evans] and [was] incredibly
impressed” with him. Thus, petitioner and Evans each became a
50-percent shareholder in the companies, and Evans became the
president of all three.
The Advances
Although Evans became a 50-percent shareholder in each of
the companies, he did not have the financial resources to make
any capital contributions to the companies in their years of
operation. Thus, petitioner provided the necessary capital and
Evans managed and developed the businesses. From time to time
between 1992 and 1995, petitioner advanced funds to the
companies. The total amount he contributed during these years
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