Joseph D. & Elizabeth M. Dunne - Page 10

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          payable on the settlement date.  Mr. Dunne was also entitled to             
          $175,000 for the sale of his FRC stock on the settlement date.              
          The arbitrator confirmed that the paragraph governing the                   
          transfer of FRC stock required Mr. Dunne to escrow the stock                
          certificates on the settlement date, and that the certificates              
          would be held in escrow until Mr. Dunne had received the money              
          owed to him.  The arbitrator noted that there was no settlement             
          date at that point because no memorializing document had been               
          signed.  He directed that the settlement date would be June 22,             
               None of the parties involved complied with the arbitration             
          award.  On June 9, 1998, FRC and Mr. Marcus filed a complaint in            
          the Court of Common Pleas of Lucas County, Ohio, to confirm the             
          arbitration award.  The complaint was removed to the U.S.                   
          District Court for the Northern District of Ohio.  On August 10,            
          1998, Mr. Dunne filed an answer and counterclaim in which he                
          stated that he was a 50-percent shareholder of FRC.  On May 6,              
          1999, the District Court confirmed the arbitration award.  All              
          parties involved appealed.                                                  
          Petitioners’ Returns                                                        
               On September 1, 1999, petitioners jointly filed a Form 1040,           
          U.S. Individual Income Tax Return, for 1997.  After an extension,           
          petitioners’ 1997 Form 1040 was due on August 15, 1998.                     
          Petitioners attached a Form 8082, Notice of Inconsistent                    

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