Joseph P. and Marilyn Schneller - Page 6

          further concluded that the majority ($81,896) of the increase                      
          should be treated as loans, as should all balances existing prior                  
          to 1982.  All issues arising from that examination (for both                       
          petitioners and Delivery) were ultimately settled by execution of                  
          two Forms 870-AD (one for petitioners individually and the second                  
          for Delivery) by petitioners and a representative of respondent’s                  
          Kansas City Appeals Office on June 1, 1990.                                        
                Shortly after the settlement, petitioners’ accountant (Mr.                   
          Arthur) wrote off $527,428 against the corporation’s retained                      
          earnings.  The $527,428 represented the balances in the following                  
          12 accounts (which reflected withdrawals either by or for the                      
          benefit of petitioners):                                                           
                Title                                   Amount                               
                     Joe Schneller                    $ 70,125                               
                     Farm                             163,694                                
                     S & S Oil                        16,646                                 
                     Jim Schneller                    11,500                                 
                     Cattle                           34,967                                 
                     Oil wells                        3,700                                  
                     Barnard Realty                   46,031                                 
                     Transportation management        5,585                                  
                     Payable to Marilyn Schneller  (23,856)                                  
                     Insulating coating               54,656                                 
                     BG Beer                          8,200                                  
                     Investment-BG Beer                136,180                               
                     TOTAL                            $527,428                               
          Respondent does not challenge $51,065 of the $527,428 written off.                 
          Respondent does, however, challenge $476,363 of the writeoff on the                
          grounds that the 12 accounts had consistently been carried on the                  
          corporate books as loans, and petitioners never included any part                  
          of the $476,363 in their personal income. Petitioners were solvent                 

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