Carl E. Jones and Elaine Y. Jones - Page 2

                                                 -2-                                                  
                                                Accuracy-Related Penalties                            
                  Year        Deficiency                    Sec. 6662                                 
                  1989        $210,819                      $42,164                                   
                  1990        125,150                       25,030                                    
                  1991        90,018                        18,004                                    

                  All section references are to the Internal Revenue Code in                          
            effect for the years in issue, and all Rule references are to the                         
            Tax Court Rules of Practice and Procedure, unless otherwise                               
            indicated.  All dollar amounts are rounded to the nearest dollar,                         
            unless otherwise indicated.                                                               
                  After concessions,1 the issues for decision are: (1) Whether                        
            petitioner received taxable distributions from Carl E. Jones                              
            Development, Inc. (Development), of $307,976, $261,591, and                               
            $224,827, in 1989, 1990, and 1991, respectively.  We hold                                 
            petitioner received distributions from Development the character                          
            and amounts of which are set out below.  (2) Whether petitioner                           
            had sufficient basis in Development's indebtedness to him to                              
            deduct pass-through losses of $163,487 and $21,022 in 1990 and                            
            1991, respectively.  We hold he did not.  (3) Whether petitioners                         
            had constructive dividend income of $80,051 in 1989 from either                           
            INI, Inc. (INI), or Spalding Partners, Ltd. (Spalding).  We hold                          
            they did not.  (4)  Whether petitioner received constructive                              

            1                                                                                         
                  Petitioners reported $66,299 of taxable interest income on                          
            their return for 1989.  Prior to trial, petitioners conceded that                         
            the correct amount is $80,120.  Petitioner reduced his                                    
            shareholder loan account balance with Carl E. Jones Development,                          
            Inc., for a payment of $54,369 that he made in 1990; respondent                           
            concedes on brief the allowance of this payment.                                          




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