Alexander M. Moye and Judy H. Moye - Page 3

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                    B.        JAM Bonding Co., Inc.                                                                                                                        
                              Around 1982, petitioners began to operate a bonding business                                                                                 
                    called JAM Bonding Co. (JAM Bonding).  Several months after they                                                                                       
                    began to operate JAM Bonding, petitioners discussed their                                                                                              
                    business with Paul C. Oddo, Jr. (Oddo), a certified public                                                                                             
                    accountant.  Oddo told petitioners the benefits of incorporating.                                                                                      
                    Petitioners decided to incorporate JAM Bonding.  However, they                                                                                         
                    deferred incorporating it so they could deduct the losses on                                                                                           
                    their personal tax returns.  James A. Bischoff (Bischoff), an                                                                                          
                    attorney, incorporated JAM Bonding.                                                                                                                    
                              Petitioners owned and operated JAM Bonding in 1990.  JAM                                                                                     
                    Bonding's 1988 gross receipts were $502,900.  Petitioners' income                                                                                      
                    from JAM Bonding was $94,000 in 1990.                                                                                                                  
                    C.        Police Dog Training Business                                                                                                                 
                              1.        Inception                                                                                                                          
                              Around 1989, petitioners decided to start a police dog                                                                                       
                    training business.  Petitioner applied to the Bureau of Alcohol,                                                                                       
                    Tobacco and Firearms (BATF) and to the Drug Enforcement                                                                                                
                    Administration (DEA) for licenses to handle narcotics and                                                                                              
                    explosives needed to train police dogs.                                                                                                                












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