National Industrial Investors, Inc. - Page 4

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            Byrne's wife died on July 28, 1988, Frances E. Byrne Jr.                                   
            (Frances) and Kimberly Byrne, Byrne's daughters, became NII's                              
            sole shareholders.                                                                         
                  Byrne has been a director of NII during most of its                                  
            existence, including the years in issue.  He was also its                                  
            president from 1971 until he resigned on October 9, 1982, and its                          
            vice president during the years in issue.  After resigning as                              
            president of NII, his daughter, Frances, succeeded him.  His wife                          
            was secretary of the corporation until her death.  During 1989                             
            and 1990, NII paid no employee compensation.                                               
                  Respondent's notice of deficiency denies all of petitioner's                         
            deductions for 1989 and 1990.  Part of petitioner's net operating                          
            loss carryover deductions come from depreciation, interest, and                            
            other deductions incurred in prior years and in part from the                              
            losses of petitioner's subsidiaries incurred in those years.                               
            Establishing the net operating loss, therefore, requires                                   
            substantiating the deductions incurred by petitioner's                                     
            subsidiaries from as far back as 1975 and demonstrating their                              
            business purpose.  Establishing the amount of depreciation on a                            
            building owned by petitioner requires substantiating its original                          
            unadjusted basis in 1971.  Interest deductions claimed by                                  
            petitioner relate to five different notes secured by petitioner's                          
            building from time to time since 1971.                                                     

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