Carl E. Jones and Elaine Y. Jones - Page 7

            had made to its shareholders.  Spalding had lent petitioner a                             
            total of $128,429 at the time of the splitup.  As part of the                             
            Agreement, Spalding transferred the loan account with the balance                         
            owed by petitioner to INI.  INI added the balance of the                                  
            transferred account to the receivables account it maintained on                           
            its books for the loans that it had made to petitioner for the                            
            fiscal year ending September 30, 1988.                                                    
                  After the separation, petitioner became the president and                           
            sole shareholder of INI, and Cates became the sole shareholder of                         
                  Development was primarily engaged in building single-family                         
            homes.  Development was incorporated as a C corporation in 1973,                          
            elected to be an S corporation in 1986 and ceased doing business                          
            in 1991.  For the years at issue, Development had a taxable year                          
            ending September 30.  Development was owned entirely by                                   
            petitioner, who was also its president.                                                   
                  Carlsgate was the marketing arm for the properties built by                         
            Development.  Carlsgate was incorporated in 1984, elected S                               
            corporation status in 1987, and filed its final return in 1991.                           
            Petitioner was the president of Carlsgate from its inception.                             
                  Towergate was a project of approximately 70 townhouses built                        
            in the mid-1980's that sold for prices ranging from $72,000 to                            

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