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authority to make decisions with respect to the sale proceeds,
potentially millions of dollars.
Jacob prepared tax returns for petitioners for the relevant
years. Those returns did not recognize any gain from the sale of
the MPG stock to First Management but included a statement,
entitled “Election to Defer Gain on Sale of Qualified Securities
under Internal Revenue Code Section 1042(a)”, which disclosed the
date and nature of the sale to First Management. In 1995,
Geoffrey, Peter, and Jacob were notified by the law firm of
Weinberg & Green, LLC, who had previously represented MPG and
were, at that time, representing Morgan and Onorato, that there
were “problems” with the ESOP.
On July 25, 1995, Geoffrey and Peter entered into an
Amended and Restated Stock Purchase Agreement drafted by Weinberg
& Green, LLC (amended ESOP). Jacob was not involved in the
drafting of the amended ESOP, but he signed it with Geoffrey and
Peter. Under the amended ESOP, petitioners agreed that First
Management failed the definition of an ESOP as set forth in
section 4975(e)(7). Petitioners also agreed that they would, if
necessary, file amended returns to correct the treatment of
payments in prior years insofar as that treatment was
inconsistent with the characterization of the purchase and sale
transactions under the amended ESOP. As part of the amended
ESOP, the previous promissory note was canceled and was replaced
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