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get the 400,000 that was put into a CD in Alofs. That, because
we didn’t pay the $500,000 note, I couldn’t draw on the 400-”.
Later he remarked: “The 400,000 shows as paid in capital by the
sellers as a tax advantage. * * * Excellence lent it to them.
They put it in as paid in capital. * * * And so I had to effect a
$500,000, just for closing, seller note. There was no seller
note in this transaction. It became secured by 400,000 that was
going to be paid to me in cash.”
The parties’ stipulations with regard to these two amounts
read as follows:
In regard to the $500,000 loan that the respondent did
not allow in basis for Alofs, petitioners indicated
that this was supposed to be received by petitioners.
During the audit, petitioners indicated that this
amount was never received from the selling
shareholders, nor contributed by petitioners to Alofs.
* * * * * * *
In regard to the $400,000 that the respondent did not
allow in basis for Alofs, petitioners advised that this
amount was a loan from Excellence to the selling
shareholders, and paid directly to Alofs. Attached as
Exhibit 23-J, is the check from Excellence to Alofs.
The referenced exhibit is a copy of a check dated December 18,
1995, in the amount of $400,000, drawn on Excellence’s account
and payable to the order of Alofs. Mr. Gleason commented on this
scenario at trial in a colloquy with the revenue agent who
audited petitioners’ returns:
Q [Mr. Gleason] * * * Also, the $400,000 * * *
the check being made out to Alofs, it is true it was
made out to Alofs, didn’t I tell you that it was handed
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