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year, petitioner wife was the sole proprietor of a photography
business.
A. G&L Sale and Madison Purchase
Mr. Greer was the president and chief executive officer of
G&L Communications, Inc. (G&L), a family-owned cable television
business which operated in Kentucky. G&L was incorporated in
December 1979, and the assets of G&L were sold to a third party in
November 1982. G&L was an S corporation. Petitioners were
shareholders of G&L at the time the assets were sold and received
dividends of approximately $250,000 on the sale. Prior to their
dividends from G&L, petitioners had not held cash assets this
large. This profit led Mr. Greer to seek advice from Hamilton
Gregg & Co. (HG), an investment broker and securities dealer with
a seat on the New York Stock Exchange. Mr. Greer had been
introduced to HG through a program at a Holiday Inn in Southport,
Ohio, in 1979. Other AOI executives also attended this program.
Mr. Greer’s primary contact at HG was Ed Gallagher, and Mr.
Greer met with Mr. Gallagher in late November 1982. Mr. Gallagher
explained the tax consequences of the dividends and suggested
purchasing municipal bonds or a limited partnership interest to
reduce petitioners’ tax liability for 1982. Shortly thereafter,
Mr. Gallagher delivered a copy of the Offering Memorandum of
Madison Recycling Associates (the offering memorandum) to Mr.
Greer. This offering memorandum and the attachments were the only
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