George S. and Frela D. Beck - Page 2

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               The issues for decision are:  (1)  Whether petitioners are             
          entitled to exclude all of their income from Federal income                 
          taxation, and (2) whether petitioners are entitled to deduct                
          payments made into a reserve account.                                       
                                  FINDINGS OF FACT                                    
               The parties submitted this case fully stipulated.  The                 
          stipulation of facts, the supplemental stipulation of facts, and            
          the attached exhibits are incorporated herein by this reference.            
          Petitioners resided in Cherokee, North Carolina, at the time they           
          filed their petition.                                                       
               Petitioner Frela D. Beck is an enrolled member of the                  
          Eastern Band of the Cherokee Indians.  During 1992 and 1993,                
          petitioners owned and operated apartment buildings located on a             
          Cherokee Indian Reservation in North Carolina.  The legal title             
          to the land on which the apartment buildings sit is vested in the           
          United States of America and held in trust for the Eastern Band             
          of Cherokee Indians.                                                        
               Petitioners entered into a loan agreement in the amount of             
          $376,000 with the Farmers Home Administration (FmHA) of the U.S.            
          Department of Agriculture in order to construct the apartment               
          buildings.  The loan agreement required petitioners to deposit a            
          total of 10 percent of the loan amount into a reserve account.              


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