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Marcus’s statement in his March 18, 1997, letter that it was his
position that Mr. Dunne had in effect already sold his shares.
While Mr. Dunne’s actions indicate he believed he retained an
interest in his FRC stock after signing the settlement agreement,
we find that his belief was not based on a clear understanding of
the law or the nature of his interest and is not controlling.
While petitioners argue that Mr. Dunne’s lack of managerial
control over FRC after the settlement agreement favors them, we
disagree. It is not clear whether Mr. Dunne exercised any
managerial control at all before 1997 or, if he did, whether he
exercised control as a shareholder as opposed to an employee.
See Pacific Coast Music Jobbers, Inc. v. Commissioner, supra at
877. Furthermore, any decrease in Mr. Dunne’s control over FRC
is consistent with Mr. Marcus’s termination of Mr. Dunne’s
employment on January 25, 1997. The fact that Mr. Marcus was in
complete control of FRC in 1997 is consistent with his status as
FRC’s president. Therefore, in the absence of evidence that
shareholders of FRC had a right to manage, this factor is
neutral.
The facts that Mr. Dunne did not participate in shareholder
meetings or vote his shares are neutral because FRC never
maintained these corporate formalities.
The fact that Mr. Dunne retained possession of the FRC stock
certificates is also neutral. While a transfer of the stock
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