Thai V. Pham and Khuy T. Bui - Page 3

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                                   FINDINGS OF FACT                                   
               Some of the facts have been stipulated and are found                   
          accordingly.  The stipulation of facts and the attached exhibits            
          are incorporated herein.  At the time the petition was filed,               
          petitioners resided in Arlington, Texas.  Petitioners timely                
          filed joint Federal income tax returns for taxable years 1988 and           
               During the years at issue, petitioners operated a sewing               
          business out of their residence.  Petitioner Khuy T. Bui                    
          (hereinafter petitioner Bui) solicited contracts from various               
          clothing manufacturers to assemble clothing.  Upon entering into            
          a contract with a clothing manufacturer, the manufacturer                   
          provided petitioner Bui with the precut material and buttons to             
          be assembled.  The manufacturer also provided petitioner Bui with           
          a fully assembled model of the finished product.  This sample was           
          used to guide the assembly process.                                         
               After receiving the precut material, petitioner Bui                    
          proceeded to subcontract the assembly process to various home               
          sewers.  The assembly process consisted of sewing together                  
          multiple pieces of precut material in accordance with                       
          specifications provided by the manufacturer.  Upon completing               
          their subcontracts, the home sewers returned the assembled                  
          garments to petitioner Bui.  Petitioners and their four sons then           
          performed the finishing work.  Finishing work consisted of                  
          attaching buttons, cutting button holes, hemming, trimming                  

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