Douglas V. and Magdalene Merante - Page 2

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                  Respondent determined a deficiency in petitioners' Federal                          
            income tax for 1990 in the amount of $5,090.  The sole issue to                           
            be decided is whether petitioner is entitled to any deduction in                          
            connection with an alleged business bad debt of $32,722, which                            
            respondent disallowed in full.  Respondent contends,                                      
            alternatively, that the alleged debt was an investment or a                               
            nonbusiness bad debt, and, in any event, that it has not been                             
            shown to have become worthless in 1990.                                                   
                  Some of the facts have been stipulated and are so found.                            
            The stipulation of facts is incorporated herein by reference.                             
            Petitioners resided in Murrieta, California, at the time of the                           
            filing of their petition.                                                                 
                  Prior to 1988, Douglas V. Merante (hereinafter petitioner                           
            when used in the singular) was involved in corporate management.                          
            Petitioner had served as vice president of Superior Steel in New                          
            York.  In addition, petitioner was an investor and president of a                         
            corporation entitled Koramics Inc. (Koramics), which specialized                          
            in importing high-quality, high-tech ceramic tile from Germany                            
            and Belgium.  However, Koramics was unsuccessful and by 1987                              
            became inactive.  In 1988, petitioners relocated to California,                           
            and petitioner began looking for new business opportunities.                              
            Shortly thereafter, petitioner met Richard Sheldon (Sheldon) at a                         

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