William N. and Moira M. Carlstedt - Page 3

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            or as applied to petitioners, resulting in respondent's incorrect                            
            characterization of petitioners' income from CDI as nonpassive.                              
                  Some of the facts have been stipulated and are found                                   
            accordingly.  The stipulation of facts and attached exhibits are                             
            incorporated herein by this reference.                                                       
                  Petitioners are married and resided in Indianapolis,                                   
            Indiana, at the time they filed their petition in this case.                                 
                                          FINDINGS OF FACT                                               
                  During the years at issue, petitioner was a shareholder or                             
            partner in the following real estate-related enterprises:  (1)                               
            CDI; (2) Citimark Development Co. (Citimark); (3) Citimark                                   
            Management, Inc. (CMI); (4) Citimark Communications, Inc. (CCI);                             
            and (5) Monaghan Leasing Co. (Monaghan).                                                     
                  Carlstedt Dickman, Inc.                                                                
                  CDI, an Indiana corporation, is a general contractor that                              
            provides design and building services, including construction                                
            management, to retail, industrial, and health care companies.                                
            CDI had an election in effect to be treated as an S corporation                              
            during the years at issue.  The net income of CDI in 1990 and                                
            1991 was $892,765 and $745,803, respectively.                                                
                  Petitioner has been president, a director, and a shareholder                           
            of CDI since its founding in 1982.  Petitioner's wife (Mrs.                                  
            Carlstedt) was also an officer and director of CDI in 1990 and                               
            1991.  During the years at issue, petitioner owned 80 percent of                             
            the stock of CDI, and Michael Dickman (Dickman), vice president                              




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