James G. LeBloch and Cathy Michelsen LeBloch - Page 8




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          shops.6  (The record does not establish the specific pieces or              
          amount of inventory that was stored at any of these places.)                
          Petitioners did not park automobiles in the garage, but they used           
          the garage to store items of inventory and for personal purposes            
          such as storing shovels, rakes, and tools unrelated to the shops.           
          Michelsen used another bedroom (approximately 225 square feet in            
          size) in the residence as an office where she performed some of             
          her work related to the shops.  This bedroom was set up by                  
          petitioners as an office, and it was not used for any other                 
          purpose (e.g., it did not have any bedroom furniture).  The                 
          office had a computer which Michelsen used mainly for budgeting             
          and accounting purposes related to the shops; Michelsen did not             
          record the income and expenses of the Nature’s Touch shops on               
          paper (e.g., in a ledger) but recorded the information solely on            
          a program on the computer.  The office also had a facsimile                 
          machine and a telephone with two lines, the second line generally           
          devoted to the facsimile machine.                                           
               During 1997, the Nature’s Touch shops experienced dire                 
          cashflow problems that required an immediate borrowing of cash.             
          On four occasions during that year, Michelsen informed LeBloch              
          that she needed cash to alleviate a cashflow problem of the                 
          shops, and she asked LeBloch to lend her the necessary cash.  On            


               6 Michelsen also kept in the guest bedroom closet “old                 
          tapes” and “old credit card records”.                                       






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