Jeffrey I. and Roberta H. Stone - Page 5

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          spouse, Roberta, was not employed outside the home.  On their               
          1981 Federal income tax return, petitioners Stone reported gross            
          income from wages, interest, and dividends in excess of $250,000.           
          Consequently, in the absence of significant deductions or                   
          credits, they were subject to payment of Federal income taxes in            
          substantial amounts for taxable year 1981.                                  
               Petitioner Joseph Cote (Cote) was a corporate bond trader              
          for Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch),            
          during 1981.  His wife, Mary, was not employed outside the home.            
          On their 1981 Federal income tax return, petitioners Cote                   
          reported gross income from wages, interest, and dividends in                
          excess of $320,000.  Consequently, in the absence of significant            
          deductions or credits, they were subject to payment of Federal              
          income taxes in substantial amounts for taxable year 1981.                  
               Stone is a limited partner in Northeast Resource Recovery              
          Associates (Northeast) and Cote is a limited partner in Hyannis             
          Recycling Associates (Hyannis).  For convenience, we refer to               
          these two partnerships collectively as the Partnerships.                    
               Petitioners have stipulated that the transactions involving            
          the Sentinel EPE recyclers leased by the Partnerships are                   
          substantially identical to those in the Clearwater Group limited            
          partnership (Clearwater), the partnership considered in Provizer            
          v. Commissioner, T.C. Memo. 1992-177.  In addition, petitioners             
          have stipulated substantially the same facts concerning the                 
          underlying transactions as we found in the Provizer case.                   




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