World of Service, Inc. - Page 8

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           the 1984 year.  Mr. Johnson did extensive traveling on behalf              
           of the corporations in connection with the promotional                     
           activity.  He would travel, entertain, and incur expenses that             
           were paid with either a credit card or cash.  After 1, 2, or               
           sometimes 3 months' accumulation of receipts, Mr. Johnson would            
           go through the receipts and mark their purpose.  All of the                
           Johnsons' bills, both personal and business, were paid by the              
           corporations.  At the end of each year, the amount for a                   
           particular category (e.g., gasoline) would be totaled, and Mr.             
           Johnson would make a judgment call about the percentage of                 
           business and personal use of that item.                                    
             Service deducted and respondent disallowed for lack of a                 
           business purpose $858 and $2,222 for 1982 and 1983 as medical              
           expenses and insurance for the Johnsons.  For 1984, Service                
           deducted (as a bonus) and respondent disallowed (for lack of a             
           business purpose) the purchase of 30,000 shares of stock in the            
           name of the Johnsons' minor child for $4,500.  Mr. Johnson                 
           testified that the $4,500 was part of reported compensation                
           from Service to him, yet no substantiation was provided to                 
           support Mr. Johnson's testimony.                                           
             For 1984, Service deducted, as a bad debt, $56,000, which                
           amount comprised loans to Linda Krabill, Kent Oaks, and Ed                 
           Rector.  Some of the loans had been made in 1984 and some in               
           1985, but all were claimed to have been made in 1984.  Linda               
           Krabill was an interior decorator who worked for the Johnsons              




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