Joseph J. James - Page 3

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                  Petitioner filed his 1986 Federal income tax return on April                         
            20, 1990.                                                                                  
                  Petitioner reported all income and deducted all expenses on                          
            six rental properties in Philadelphia, Pennsylvania, all of which                          
            showed a loss.  Petitioner was the sole owner of four of these                             
                  Petitioner owned 4512 Kingsessing with his mother, Frances                           
            James Moore, as tenants in common.  Petitioner and his sister                              
            Brenda Pitt owned 4514 Kingsessing as tenants in common.  Both                             
            women were on public assistance, and petitioner wanted to provide                          
            a place for them to live.  Petitioner provided the downpayment on                          
            each property and made the mortgage and escrow payments for taxes                          
            and insurance from his own funds.  The mortgagee's records for                             
            4512 Kingsessing are in the names of Frances James Moore or                                
            Joseph J. James.  We assume the mortgage for 4514 Kingsessing                              
            with Brenda Pitt is similar.                                                               
                  Each of the Kingsessing properties consisted of three units.                         
            Ms. Moore lived in one of the units at 4512, and Ms. Pitt lived                            
            in a unit at 4514.  The remaining units were rented to others and                          
            managed by the two women.  The women kept up the yards,                                    
            interviewed tenants, cleaned vacant apartments, collected some of                          
            the rents on petitioner's behalf (some tenants sent their rent                             
            directly to petitioner), paid the bills, caused repairs to be                              
            made, and were accountable to petitioner.  Ms. Moore deposited                             
            the rental income in a special joint checking account in the                               

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