Dennis A. and Tai K. Praegitzer - Page 2

                                        - 2 -                                         
          Additions to Tax                                                            
          Petitioner                       Deficiency      Sec. 6662(a)               
          Dennis A. & Tai K. Praegitzer1     $33,425        $6,685                    
          Kathleen M. Dawes                  37,293           7,458                   
               All section references are to the Internal Revenue Code in             
          effect for the year in issue.  All Rule references are to the Tax           
          Court Rules of Practice and Procedure.                                      
               Petitioner Praegitzer and petitioner Dawes are former                  
          spouses.  Prior to and during their marriage, Mr. Praegitzer and            
          Ms. Dawes, along with Ms. Dawes' brother, owned a corporation               
          (Ameritech).  Incident to Mr. Praegitzer's and Ms. Dawes'                   
          divorce, Ameritech spun off one of its businesses (the 303                  
          products business) to petitioner Praegitzer.  This business                 
          became petitioner Praegitzer's wholly owned corporation (303                
          Products, Inc., hereinafter 303 Products).  Respondent contends             
          that petitioner Praegitzer received dividend income from 303                
          Products when it distributed cash to, and forgave a debt owed it            
          by, petitioner Praegitzer.2  Petitioner Praegitzer argues that              
          the cash and relief from indebtedness were received incident to a           
          divorce and thus were tax free under section 1041.  Respondent              
          alternatively argues that if petitioner Praegitzer is not taxable           

               1  Tai K. Praegitzer is a party to this action solely                  
          because she filed a joint Federal income tax return with Dennis             
          A. Praegitzer for the taxable year 1990.  Any reference to                  
          petitioner Praegitzer herein is to Dennis A. Praegitzer.                    
               2  Respondent further contends that this adjustment to                 
          adjusted gross income reduces the amount of medical deductions              
          that Praegitzer was entitled to claim.  This is a computational             
          matter that will be addressed, if necessary, under Rule 155.                



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