Michael W. Rehtorik, et al. - Page 3

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          fraud and other additions to tax for 1984, 1985, and 1987; and              
          (2) whether petitioner is entitled for 1986 to deduct $6,033 in             
          interest expenses and for 1987 $108,037 in legal expenses.  All             
          issues relating to Barbara B. Rehtorik have been settled.                   

                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
               In 1983, petitioner, as sole shareholder, incorporated                 
          Government Securities Corp. (GSC) as a Florida corporation.2                
          Until May 1987, petitioner was president of GSC.                            
               In 1984, petitioner incorporated Government Securities Group           
          of America (GSC America) as a Florida corporation and as the                
          parent holding company of GSC.  Petitioner was sole shareholder             
          and president of GSC America.                                               
               GSC was engaged as a broker/dealer in the purchase and sale            
          for and to investors of Government-backed securities, such as               
          Government National Mortgage Association and Federal National               
          Mortgage Association mortgage-backed securities, and U.S.                   
          Government zero coupon bonds.                                               
               Separately from GSC’s above brokerage activities on behalf             
          of investors, GSC solicited funds from a limited number of                  
          individual investors to be invested on behalf of GSC by                     
          petitioner and by Oscar F. Gomez (Gomez), vice president and                

          2     GSC was originally incorporated under the name of the                 
          Federal Government Securities Corp. (FGSC).  In 1984, FGSC                  
          changed its name to GSC to comply with Federal law.                         




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