Roger E. Goodrich and Suzanne B. Goodrich - Page 6

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          promissory note provided for fixed interest and was secured by              
          certain UI computer software.                                               
               On December 27, 1989, UI obtained a secured loan from the              
          City of Orem, Utah, in the principal amount of $80,000, with                
          repayment of principal and interest at 8.5 percent due over 36              
          months.  Petitioners subordinated the 1989 promissory note to the           
          City of Orem’s secured loan.  At least through July 31, 1990, UI            
          made payments to the City of Orem on the $80,000 loan.                      
               During 1990, UI began to experience financial difficulty               
          largely caused by UI’s inability to sell its new computer                   
          software products.                                                          
               On December 21, 1990, 10 days prior to the maturity date of            
          the 1989 promissory note, UI notified petitioners that it would             
          not be able to pay the $184,874 principal balance reflected on              
          UI’s accountant’s ledger with regard to the 1989 promissory note.           
          At no time did petitioners take any legal action to collect the             
          $184,874 from UI.                                                           
               On December 30, 1990, following advice of their tax return             
          preparer and in an attempt to qualify their investment in UI as a           
          section 1244 ordinary loss for 1990, petitioners caused UI to               
          issue additional stock in the name of the family trust in                   
          exchange for the $184,874 that allegedly was owed to petitioners            
          or the family trust under the 1989 promissory note.                         
               On July 2, 1991, petitioner in writing urged UI’s creditors            
          to accept a plan that would restructure UI’s debt obligations.              




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