National Industrial Investors, Inc. - Page 26

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            stopped his membership with the Desert Area Multiple Listing                               
            Service and Board of Realtors.  Because Sale By Owner and Far                              
            Western operated under Hugh's brokerage license, his membership                            
            cancellation effectively prevented the two companies from further                          
                  Petitioner substantiated the expense of Sale By Owner and                            
            Far Western by both books and canceled checks.  Respondent                                 
            asserts that some of the checks paid unrelated personal expenses                           
            of the principals.  There are several hundred checks, and                                  
            respondent has failed to direct us to the offending ones.                                  
            Petitioner has made a prima facie case on this point, and                                  
            respondent has offered no countervailing evidence.  Petitioner is                          
            entitled to include the losses from Sale By Owner and Far Western                          
            in the calculation of its net operating losses.                                            
                  In addition to net operating losses, depreciation, and                               
            interest, respondent denied every other deduction petitioner                               
            claimed for 1989 and 1990 on the grounds of lack of business                               
            purpose and lack of substantiation.  Respondent has since                                  
            conceded some of these other deductions, but $10,454.15 and                                
            $13,848.06 of them for 1989 and 1990, respectively, remain in                              
            controversy.  Of these deductions still in controversy,                                    
            respondent has admitted that petitioner substantiated a total of                           
            $5,308.89 and $8,062.02 for 1989 and 1990, respectively.                                   
            Petitioner has also established that during those years its                                

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