Bobby E. Syphrett and Janice D. Syphrett - Page 2

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          gross income includes certain proceeds that they received in                
          settlement of a lawsuit.  We hold it does.  Section references              
          are to the Internal Revenue Code in effect for 1989.  Rule                  
          references are to the Tax Court Rules of Practice and Procedure.            
          Dollar amounts are rounded to the nearest dollar.                           
               All facts have been stipulated.1  The stipulated facts and             
          exhibits submitted therewith are incorporated herein by this                
          reference.  When they petitioned the Court, petitioners resided             
          in The Woodlands, Texas.                                                    
               From 1982 through 1990, Bobby E. Syphrett was president,               
          sole shareholder, and sole employee of a Texas corporation named            
          Intrastate Gas Gathering, Inc. (Intrastate).  Intrastate’s                  
          principal business activity was gas transmission.                           
               In approximately 1980, Mr. Syphrett and Intrastate planned             
          with Jack R. Wiewall to develop five gas-gathering projects (the            
          projects).  The projects contemplated the construction of                   
          pipeline systems and related plant to collect natural gas from              
          producing properties and transport it to large pipelines for                
          shipment to major distribution centers.  Mr. Wiewall’s role was             

               1 Petitioners ask the Court to find as facts certain                   
          allegations that were made in pleadings in two State court                  
          actions.  We decline to do so.  The record does not reveal                  
          whether the opposing parties in those actions admitted or denied            
          these allegations, and the record does not otherwise allow us to            
          determine independently the validity of these allegations.                  

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