Karen Ann Keegan - Page 3

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            incorporated herein by this reference.  At the time of filing the                         
            petition, petitioner resided at Clearwater, Florida.                                      
            1.  Petitioner's Schedules C                                                              
                  In 1988, petitioner began operating a sole proprietorship                           
            which offered drafting services under the name Keegan &                                   
            Associates (K & A).  Petitioner managed K & A and performed any                           
            necessary bookkeeping.  Petitioner's cousin, Robert Gorges, and                           
            their daughter, Windi Keegan (Windi), worked for K & A during the                         
            taxable years in issue.3  Since petitioner had no drafting                                
            experience, Mr. Gorges performed any required drafting services.                          
            In addition, Mr. Gorges operated the business when petitioner was                         
            away.  Windi answered telephones and performed other                                      
            administrative duties.                                                                    
                  Although petitioner did not pay Windi or Mr. Gorges a fixed                         
            salary or weekly wage, they would from time to time take cash                             
            from K & A.  In addition, many of Mr. Gorges' and Windi's living                          
            expenses were paid out of K & A's funds.  Petitioner kept no                              
            records of the amount of cash which K & A paid for services                               
            rendered during the taxable years in issue.                                               
                  On Schedules C of her returns for the taxable years 1994 and                        
            1995, petitioner reported gross receipts, cost of goods sold, and                         
            expenses related to K & A as follows:                                                     
            1994                 1995                                                                 

                  3  Petitioner and Mr. Gorges have never been married.                               

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