California Marine Cleaning, Inc. - Page 5

                                          5                                           
          1996, respondent sent a notice of deficiency to petitioner.  In             
          it, respondent determined that petitioner had deficiencies in               
          income tax (including accumulated earnings tax) of $100,548 for             
          FY 1992, $68,286 for FY 1993, and $50,678 for FY 1994.                      
          Respondent determined that petitioner had accumulated taxable               
          income of $289,736 in FY 1992, $205,937 in FY 1993, and $160,203            
          in FY 1994.                                                                 
               Respondent determined petitioner's accumulated earnings4 as            
          of the close of the prior year as follows:                                  
                                   9/30/92         9/30/93        9/30/94             
          Accrual basis       $1,149,031     $1,230,404     $1,197,598                


          Accounts receivable      (985,378)      (852,526)      (655,925)            
          Tax refund receivable                   (16,474)       (42,197)             
          Accounts payable         1,818          2,080          1,676                
          Deferred taxes           117,643        67,687         7,684                
          Income taxes payable     56,867                                             


          Cash basis               339,981        431,171        508,836              
               Respondent computed petitioner's accumulated earnings                  
          credit5 in the notice of deficiency as follows:                             

               4 A corporation's accumulated earnings are the earnings it             
          accumulates rather than distributes.  See United States v.                  
          Donruss Co., 393 U.S. 297, 303 (1969).                                      
               5 The accumulated earnings credit is generally the amount of           
                                                             (continued...)           




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