Leonard Ray Blanton and Betty Blanton - Page 3

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               For the taxable year 1978, petitioners timely filed a joint                              
              Federal income tax return, Form 1040, showing total income of                             
              $57,560.  On March 26, 1980, petitioners filed an amended 1978                            
               Federal income tax return, Form 1040X, showing an additional                             
            $38,334.50 received as the gross sale price for an interest in an                           
             oil and gas partnership.  After other adjustments, petitioners'                            
                            income increased by $11,914 therefrom.                                      
                  On October 29, 1984, respondent issued a notice of                                    
            deficiency to petitioners, which recharacterized the $38,334.50                             
            as ordinary income.  Respondent claims that the $38,334.50 is                               
            actually the sum of a $15,000 finder's fee petitioner received                              
            for assisting a constituent in procuring a construction loan and                            
            a $23,334.50 fee for assisting the same constituent in procuring                            
            a liquor license.  Respondent also asserted an addition to tax                              
            for fraud.                                                                                  
                  From January 1975 through January 1979, petitioner was the                            
            Governor of the State of Tennessee.  Prior to being elected                                 
            Governor, he served as a member of the Tennessee legislature and                            
            the U.S. House of Representatives.  For the taxable year in                                 
            issue, petitioner was married to Betty Blanton (Mrs. Blanton).                              
            Sometime after July 1984, petitioner and Mrs. Blanton were                                  

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