Stanley P. Zurn - Page 7

          Issue 2.  Whether Petitioner Is Entitled to a Capital or Ordinary           
          Loss in Connection With Road Construction Activity, and, If So,             
          in Which Year                                                               
               In 1980, Gloria Jackson (Ms. Jackson) formed a partnership             
          entitled BAJAC Construction Co. (BAJAC) with her sister, Joanne,            
          and a third partner, Robert O. Hollar (Mr. Hollar).  Due to                 
          inadequate cash-flow, BAJAC filed for protection under chapter 11           
          of the U.S. Bankruptcy Code during 1984.                                    
               Cities Development Group, Inc. (Cities), was a corporation             
          formed in the summer of 1985 by Ms. Jackson (80 percent) and Mr.            
          Hollar (20 percent) to engage in subcontracting work and to                 
          create a more competitive, nonunion organization.  Cities, which            
          later changed its name to American Cities, was a "minority                  
          business enterprise" and a "woman business enterprise", which               
          enabled it to take advantage of certain affirmative action                  
          contracting programs.  Cities made a bid on the Lake Elsinore               
          project and was awarded a subcontractor project by Cornish                  
               Normally, receipt of payment to Cities for road construction           
          work was delayed.  In some instances Cities received payment more           
          than 2 months after the prime contractor had billed the local               
          government.  After completing a percentage of the Lake Elsinore             
          project during the first half of 1986, Cities was removed from              
          the job and commenced litigation in Federal court.  Ms. Jackson             
          believed Lake Elsinore was a project worth $900,000 and sought              

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