V.R. DeAngelis M.D.P.C. & R.T. Domingo M.D.P.C., V. R. DeAngelis M.D.P.C., Tax Matters Partner, et al. - Page 9

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               C.  Arrangements With PCs                                              
               VRD/RTD entered into arrangements with the PCs for the                 
          provision of the doctors’ medical services.  The doctors                    
          performed their services for the patients of VRD/RTD, and VRD/RTD           
          billed the patients for the fees due on these services.  VRD/RTD            
          received payment of the fees, deposited the payments into its               
          bank account, and reported the payments as income on its Forms              
          1065.  Dr. Domingo performed services for VRD/RTD through the end           
          of 1999; afterwards, through 2003, Dr. Domingo continued to work            
          for his PC performing services for other than VRD/RTD.  Dr.                 
          DeAngelis terminated his services with VRD/RTD on or about                  
          December 31, 2003.                                                          
               D.  Partnership Agreement                                              
               The VRD/RTD partnership agreement in effect for the subject            
          years (partnership agreement) was executed on June 19, 1990.  The           
          partnership agreement stated that Drs. DeAngelis and Domingo were           
          employed by their PCs and that any future doctor who wished his             
          PC to become a partner of VRD/RTD had to be employed by his PC.             
          The partnership agreement stated that it was anticipated that Dr.           
          DeAngelis would fully retire from VRD/RTD on July 1, 1994, and              
          that Dr. Domingo would not retire until 1 year after Dr.                    
          DeAngelis retired.  If Dr. DeAngelis continued working for                  
          VRD/RTD until at least July 1, 1995, the partnership agreement              
          allowed Dr. Domingo to retire at the same time as Dr. DeAngelis             

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