James K. Roberts - Page 3

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          which we so find.  The stipulations of fact filed by the parties            
          and attached exhibits are incorporated herein by this reference.            
          Although the issues remaining for decision are principally                  
          factual, we need find few facts in addition to those stipulated             
          by the parties.  Accordingly, we have not divided our report into           
          two sections, one comprising our findings of fact and the other             
          setting forth our opinion.  The additional findings we must make            
          are contained in the discussion that follows.  After setting                
          forth certain background information, we shall address (1) the              
          adjustments made by respondent that remain in dispute and (2) the           
          additions to tax that remain in dispute.  Petitioner bears the              
          burden of proof on all questions of fact.  Rule 142(a).                     
          I.  Background                                                              
               Petitioner resided in Huntington, New York, at the time the            
          petition in this case was filed.                                            
               During 1986, petitioner was employed as an automobile                  
          salesman by two different automobile dealerships, Sports Imports            
          Inc. (Sports Imports) and Rallye Motors, Inc. (Rallye Motors).              
          Petitioner was unemployed from approximately April 1986, when his           
          employment by Sports Imports ended, until December 1986, when his           
          employment by Rallye Motors began.  During 1987 and 1988,                   
          petitioner was employed as an automobile salesman by Rallye                 
          Motors.  During 1987 and 1988, petitioner owned a horse racing              
          and breeding business.  Petitioner is a frequent gambler.                   






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