Bobby E. Syphrett and Janice D. Syphrett - Page 7

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          tax return for the prior year also reported no tax liability; the           
          return showed a net loss of $67,570.                                        
               Petitioners' 1989 tax return, as originally filed, reported            
          that they had no taxable income and no tax liability.  On a                 
          schedule attached to that return, petitioners listed the                    
          following information in support of $586,325 that they included             
          as other income, and that they offset by a $383,073 net operating           
                    Lawsuit settlement:                                               
                    Gross proceeds.................... $1,500,000                     
                         Less legal fees..............    413,675                     
                         Less reimbursements..........   1500,000                     
                         Net other income............     586,325                     
               1Petitioners concede that they incorrectly deducted $2,333             
          more than they actually paid to Intrastate as "Reimbursements".             
               Intrastate paid all legal fees as they were incurred, and it           
          deducted these fees on its tax returns for the years in which the           
          fees were paid.  Intrastate deducted all salary and other                   
          compensation paid to Mr. Syphrett, along with related employment            
          taxes, on its tax returns for the years in which these amounts              
          were paid.                                                                  
               The parties to the Wiewall litigation moved to dismiss that            
          case on December 13, 1990, with prejudice to their rights to                
          refile any claim, counterclaim, or any part thereof.  In                    
          connection with this dismissal, Intrastate recovered all of the             
          Contracts, and Mr. Syphrett received nothing.                               

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