Gustafson's Dairy, Inc. - Page 20

                    b.   Funding of the Super Trust                                   
               Petitioner and members of the Gustafson family contributed             
          liquid assets and stock in petitioner to the Super Trust.  These            
          assets were held in separate funds for each contributor.                    
               Petitioner transferred $3,677,911 to the Super Trust in                
          fiscal year 1988 and $1,250,000 in fiscal year 1989.  Petitioner            
          accounted for these transfers on its books by reducing cash and             
          retained earnings by the amounts of the transfers.  Petitioner              
          reported these transfers as nondeductible contributions from                
          retained earnings on its Federal income tax returns.  Petitioner            
          received the net income from its fund but was not entitled to               
          have its principal returned until the Super Trust was terminated.           
          E.S. Gustafson had sole discretion to invade the principal of               
          petitioner's fund in the Super Trust and to direct how to use it.           
                    c.   Trust Income                                                 
               The Super Trust filed Forms 1041, U.S. Fiduciary Income Tax            
          Return, for 1988 and 1989.  It reported no taxable income for               
          those years.  Most of its income was from tax-exempt municipal              
          bonds.  Petitioner failed to report $35,285.08 of taxable income            
          and $152,637.74 of tax-exempt municipal bond interest earned by             

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