Don Ballantyne and Susanne C. Ballantyne - Page 2

                                       Additions to Tax                               
          Year  Deficiency  Sec. 6653(a)(1)1  Sec. 6653(a)(2)  Sec. 6661              
          1985  $388,937       $19,447              2           $ 97,235              
          1986   950,703        47,535              2           237,676               
                    The addition to tax for negligence or intentional                 
          disregard of rules or regulations is codified under  sec.                   
          6653(a)(1)(A) and (B) for 1986.                                             
               2    50 percent of the interest due on the deficiency.                 
               Susanne Ballantyne is a party to this case by virtue of having         
          filed a joint return for the years under consideration with her             
          husband, Don.  Accordingly, Don Ballantyne hereinafter will be              
          referred to as petitioner.                                                  
               Some of the issues raised by the pleadings have been disposed          
          of by agreement of the parties. The principal unagreed issue                
          focuses on the transfer of 86 acres of land located in Escondido,           
          California (the Escondido property), in 1985 from petitioner to             
          Balmac, Inc. (Balmac), an entity he controlled.  Our task is to             
          determine whether that transfer should be characterized as a sale,          
          as respondent contends, or a tax-free exchange, as petitioner               
          urges.1  In the event we determine that the transfer constituted a          
          sale, then we must determine the amount of gain petitioner must             
          recognize therefrom.  Other  unagreed  issues  are:    Whether              
          petitioners had $40,188 of unreported interest income in 1986;              

               1    As will be discussed infra, petitioner claims that he             
          contributed approximately 44.25 acres of the Escondido property             
          to BTG Corp., a Delaware corporation, in exchange for 1,000                 
          shares of its stock, and that the balance of the acreage was                
          transferred on petitioner's behalf to Balmac.                               

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