Yarbrough Oldsmobile Cadillac, Inc. - Page 16

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          1985, however, at Elvin's direction, YOC's employees did not                
          attempt to sell the Capriole.  The log and guest register                   
          relating to the Capriole do not reflect any business use of the             
          Capriole.  The Capriole was used by Elvin on numerous occasions             
          to entertain personal friends.  Elvin invited guests to take                
          pleasure cruises aboard the Capriole.  Elvin and his guests used            
          cocaine, marijuana, and alcohol during cruises aboard the                   
          Capriole.                                                                   
               During 1984 and 1985, respectively, YOC paid $90,635 and               
          $133,179 in expenses for repairs, restoration, maintenance, and             
          operation of the Capriole, and YOC deducted these expenses as               
          business expenses.  For 1983, 1984, and 1985, YOC did not claim             
          depreciation deductions relating to the Capriole.                           
               In July of 1989, the Capriole was traded to an unrelated               
          party for real property located in Jackson County, North                    
          Carolina.  The stated sale price for the Capriole was $186,500.             
          The real property that was received in the exchange was treated             
          by YOC as an asset of YOC.  The record does not reflect whether a           
          gain or loss was realized on this sale nor whether YOC reported             
          the sale on its 1989 corporate Federal income tax return.                   
               The parties have stipulated that for 1984 and 1985 the fair            
          rental value for use of the Capriole was $1,200 per day.                    
               On audit, respondent determined that YOC held only nominal             
          legal title to the Capriole and that Elvin was the owner of the             
          Capriole.  Respondent determined that for 1984 the $80,000                  




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