Kenneth C. & Becky J. Theisen - Page 2

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               Respondent determined deficiencies in petitioners' Federal             
          income taxes as follows:                                                    
                         Year           Deficiency                                    
                         1992           $3,160                                        
                         1993      4,240                                              
          In the notice of deficiency, respondent disallowed petitioners'             
          deductions for Schedule C expenses incurred in connection with              
          their Amway activity because they were not ordinary and necessary           
          expenses within the meaning of section 162.  By answer,                     
          respondent raised the issue that petitioners did not intend to              
          make a profit from their Schedule C activities for 1992 and 1993.           
          In the answer, respondent also requested the Court to find that             
          the deficiencies in tax for 1992 and 1993 were subject to the               
          accuracy-related penalties under section 6662.  Respondent's                
          answer further asserted that petitioners were negligent and                 
          intentionally disregarded the rules or regulations under the                
          Internal Revenue Code in filing their 1992 and 1993 Federal                 
          income tax returns.                                                         
               Respondent has conceded that petitioners did not have a                
          substantial understatement of income tax for 1992 and 1993 under            
          section 6662(d).  As a result of the concession, the parties                
          limited the issue of penalties to those under section 6662(b)(1)            
          as follows:                                                                 
                         Year           Penalty                                       
                         1992           $632                                          
                         1993      848                                                

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