Richard E. and Mary Ann Hurst - Page 3

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               The Hursts believe that they arranged these transactions to            
          enable them to pay tax on their profit from the sale of HMI and             
          RHI at capital gains rates over a period of fifteen years.  The             
          Commissioner disagrees.                                                     
                                  FINDINGS OF FACT                                    
               The Hursts were married in 1965, and have two children.  Mr.           
          Hurst got his first job in the HVAC industry during high school,            
          working as an apprentice in Dearborn.  He later earned an associ-           
          ate’s degree in the field from Ferris State College.  After ser-            
          ving in the military, he moved back to Detroit, and eventually              
          gained his journeyman’s card from a local union.  In 1969, he and           
          his wife made the difficult decision to move their family away              
          from Detroit after the unrest of the previous two years, and they           
          settled in Grand Rapids where he started anew as an employee of a           
          large mechanical contractor.                                                
               In April 1979, the Hursts opened their own HVAC business,              
          working out of their basement and garage.  Mr. Hurst handled the            
          technical and sales operations while Mrs. Hurst did the bookkeep-           
          ing and accounting.  The business began as a proprietorship, but            
          in November of that year they incorporated it under Michigan law,           
          with Mr. Hurst as sole shareholder of the new corporation, named            
          Hurst Mechanical, Inc. (HMI).  In 1989, HMI elected to be taxed             
          under subchapter S of the Code, and that election has never                 

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