Dennis C. Gandy - Page 13

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                              Year      Amount                                        
                              1985      $6,500                                        
                              1986      15,000                                        
                              1987      6,500                                         
               In February 1986, petitioners engaged John E. Shinn (Shinn),           
          a certified public accountant, to prepare the nursery's financial           
          statements and petitioners' 1985 income tax return.  Mr. Gandy              
          asked Shinn to assist them in procuring more appropriate software           
          to manage their accounting and inventory functions.  Shinn spent            
          a month or two at the nursery office while analyzing the                    
          nursery's needs.  As a result, petitioners purchased new computer           
          software that would track inventory as well as maintain the                 
          nursery's books and records.  This new system was installed                 
          during mid-1987, and the vendor provided training to the nursery            
          employees.                                                                  
          Loans to Petitioners                                                        
               Small Business Administration                                          
               Petitioners received loans from the Small Business                     
          Administration (SBA).  The first loan was in the amount of                  
          $200,000 after a severe drought in approximately 1980 to 1981.              
          The second loan was for $500,000 in 1983 to 1984, after severe              
          winter weather damaged the crops.  The purpose of the SBA loans             
          was to enable petitioners to restart their nursery after these              
          disasters.  Petitioners placed the funds from these SBA loans               
          into certificates of deposit (CD’s).  During 1985 and 1986,                 
          petitioners made the following payments on the SBA loans:                   



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