Richard E. and Mary Ann Hurst - Page 8

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          of default.  To reduce these risks, the parties agreed to a                 
          complicated series of cross-default and cross-collateralization             
          provisions, the net result of which was that a default on any one           
          of the promissory notes or the Safety Drive lease or Mrs. Hurst’s           
          employment contract would constitute a default on them all.                 
          Since the promissory notes were secured by the HMI and RHI stock            
          which the Hursts had sold, a default on any of the obligations              
          would have allowed Mr. Hurst to step in and seize the HMI stock             
          to satisfy any unpaid debt.                                                 
               As it turned out, these protective measures were never used,           
          and the prospect of their use seemed increasingly remote.  Under            
          the management of Todd Hurst, Dixon, and Tuori, HMI boomed.  The            
          company’s revenue increased from approximately $4 million                   
          annually at the time of the sale to over $12 million by 2003.               
          Not once after the sale did any of the new owners miss a payment            
          on their notes or the lease.                                                
               The Hursts reported the dispositions of both the HMI and RHI           
          stock on their 1997 tax return as installment sales of long-term            
          capital assets.  The Commissioner disagreed, and recharacterized            
          these dispositions as producing over $400,000 in dividends and              
          over $1.8 million in immediately recognized capital gains.  In              
          the resulting notice of deficiency for the Hursts’ 1997 tax year,           
          he determined that this (and a few much smaller adjustments) led            
          to a total deficiency of $538,114, and imposed an accuracy-                 

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