Lavern Scherping - Page 4

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          incorporated herein by this reference.  Petitioners resided in              
          Freeport, Minnesota, when they petitioned the Court.                        
               Petitioners are brothers.  During the years in issue they              
          were dairy farmers who sold milk to Modern Craftsmen Milk                   
          Association (MCMA), or to MCMA's successors, through Imperial               
          Investments, Inc. (Imperial).                                               
               Petitioners participated with Joan Noske, C.P.A., among                
          others, in a scheme to understate their Federal income tax                  
          liabilities through purported transfers of farming assets and               
          operations to Imperial.  Ms. Noske prepared petitioners'                    
          individual income tax returns and Imperial's corporate returns.             
               For 1984 and 1985, Loren Scherping reported on each of his             
          tax returns that he realized $11,000 a year of sole                         
          proprietorship income.  This was income he derived from farming.            
          For 1986, he reported sole proprietorship income of $11,600,                
          which was farming income.                                                   
               For 1984 and 1985, LaVern Scherping reported on each of his            
          tax returns that he realized $8,000 a year of sole proprietorship           
          income.  This was income he derived from farming.  For 1986, he             
          reported sole proprietorship income of $8,600, which was farming            
          income.                                                                     
               Respondent determined and reflected in a separate notice of            
          deficiency for each petitioner that petitioners were required to            







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