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Petitioner was born in 1930. He received a bachelor of
science degree in economics. In or about 1977, petitioner and
John P. Stern (Stern) commenced a wood floor manufacturing and
distribution company known as Kentucky Wood Floors, Inc.
(Kentucky Wood). Each invested $31,000 and received 31,000
shares of stock. Mrs. Dubose subsequently received stock in
Kentucky Wood. During 1981, a partnership known as Kywood
Investments, Ltd. (Kywood), was formed among petitioners, Stern,
and other investors to purchase the building that housed Kentucky
Wood. Mrs. Dubose held her partnership interest in her name.
Petitioner’s partnership interest in Kywood was held through a
corporation known as Dubose Properties, Inc., d/b/a International
Telecommunications (the corporation). The corporation had no
assets other than its partnership units in Kywood.
In 1986 and 1987, Kentucky Wood repurchased the stock and
partnership interests owned by petitioners and by the
corporation. As a result of this sale of their interests,
petitioners received net capital gains in 1986, 1987, and 1988 in
the amounts of $124,599, $503,684, and $560, respectively.
Petitioners reported only $15,498.38 in 1986 and $181.26 in 1987
from the sale of their interests in these entities. Petitioners
also received interest and/or dividend income of $1,016 in 1986,
$226,851 in 1987, $60,934 in 1988, $77,243 in 1989, and $53,097
in 1990, which was not reported on their returns for those years.
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