John B. Mathers, Sr. - Page 6

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          decrease did not reflect the amount of petitioner's personal                
          expenses, totaling approximately $239,000, that were paid by FBI            
          over the same time period.                                                  
               After meeting with the agents assigned to his case,                    
          petitioner sought assistance from an accountant, G. Marshall                
          Burden (Burden), in preparing amended returns for FBI.  Burden              
          relied on the prior FBI returns prepared by petitioner to arrive            
          at the beginning loans from stockholders balance on the amended             
          returns.  Petitioner possessed no other documents to substantiate           
          the alleged loans.  The loans from stockholders balance shown on            
          the amended returns declined in accordance with the FBI payment             
          of the personal expenses of both petitioner and Mathers, Jr.  In            
          June 1989, Burden filed further amended returns to eliminate the            
          allocation to the loans from stockholders balance of Mathers,               
          Jr.'s personal expense payments in prior years.                             

               Petitioner contends that the amounts he received from FBI              
          were in repayment of loans he made to FBI, and, therefore, those            
          amounts are not taxable to him.  He claims that he had no                   
          obligation to file tax returns for the years in issue because he            
          had no taxable income.                                                      
               Respondent contends that the payments from FBI for the                 
          benefit of petitioner and his son constituted constructive                  
          dividends and are taxable to petitioner.  Respondent further                
          argues that petitioner knew that these payments were income to              

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