Richard E. and Mary Ann Hurst - Page 17

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               3.   Employment of Mrs. Hurst                                          
               At the same time that HMI redeemed Mr. Hurst’s stock and               
          signed the lease, it also agreed to a ten-year employment con-              
          tract with Mrs. Hurst.  Under its terms, she was to receive a               
          salary that rapidly declined to $1000/month and some fringe                 
          benefits--including health insurance, use of an HMI-owned pickup            
          truck, and free tax preparation.                                            
               In deciding whether this was a prohibited interest, the                
          first thing to note is that Mrs. Hurst did not own any HMI stock.           
          Thus, she is not a “distributee” unable to have an “interest in             
          the corporation (including an interest as officer, director, or             
          employee), other than an interest as a creditor.”  Sec.                     
          302(c)(2)(A)(i).  The Commissioner is thus forced to argue that             
          her employment was a “prohibited interest” for Mr. Hurst.  And he           
          does, contending that through her employment Mr. Hurst kept an              
          ongoing influence in HMI’s corporate affairs.  He also argues               
          that an employee unrelated to the former owner of the business              
          would not continue to be paid were she to work Mrs. Hurst’s                 
          admittedly minimal schedule.  And he asserts that her employment            
          was a mere ruse to provide Mr. Hurst with his company car and               
          health benefits, bolstering this argument with proof that the               
          truck used by Mrs. Hurst was the same one that her husband had              
          been using when he ran HMI.                                                 

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