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* * * * * * *
4. Any and all other provisions of the Lease
which reflect any rights of ownership of
Lessor in the Improvements shall be deemed
hereby deleted. It is the intent of the
parties to revise the Lease to reflect solely
the ownership by the Lessor of the land.
5. Except as hereinabove modified, the Lease
remains in full force and effect.
An Ernst & Young memorandum dated January 11, 2000 that was
prepared under Ms. Schadle’s supervision stated in pertinent
part:
FACTS
The Transaction
KQC Investors, Inc. (“KQC”), a North Carolina limited
liability company, is owned by Hal Kaplan, Dean
Caldwell and Matthew Marceron. KQC purchased a child
care facility located in Helena, Ohio. In April of
1997, KQC entered into an operating lease with Texas
Migrant Counsel [sic], Inc. (“Texas”) [TMC] relating to
said facility. Texas qualifies as an exempt organiza-
tion under IRS �501(c)(3).
KQC’s cost basis in the facility is approximately
$125,000. Since April of 1997, Texas has made substan-
tial leasehold improvements to the facility. KQC
estimates that Texas spent approximately $800,000 on
these improvements. After the improvements were com-
pleted, the building was appraised at a value of
$1,000,000. No depreciation was taken on these lease-
hold improvements by either KQC or Texas, nor were the
leasehold improvements ever carried on the books of
KQC.
On December 31, 1999, KQC and Texas entered into an
agreement whereby KQC agreed to transfer and assign all
of its rights, title and interest in and to the build-
ing (including the leasehold improvements) to Texas as
a charitable contribution. The owners of KQC intend to
take a charitable contribution deduction for the full
fair market value of this property.
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