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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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