Michael A. and Karyn E. Schmitt - Page 2

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                                  FINDINGS OF FACT1                                   
               At the time the petition was filed, petitioners resided in             
          Woodland Hills, California.  Petitioners are cash basis                     
          taxpayers.  Michael A. Schmitt (petitioner) is a law professor at           
          Southwestern University School of Law in Los Angeles, California,           
          and is licensed to practice law in the State of California.  From           
          1984 through the time of trial, petitioner operated a sole                  
          proprietorship under the name Legal Education Conference Center             
          (LECC).                                                                     
               LECC offered a full-service bar review course and                      
          supplemental workshops to law school graduates who were preparing           
          to take the California bar examination.  The full service bar               
          review course covered substantive areas of law tested on the                
          California bar examination, including both the National                     
          multistate law and California State law components of the bar               
          examination.  LECC also offered three supplemental workshops that           
          each focused on a specific area of testing on the California bar            
          examination:  Essay writing, performance skills, and the                    
          multistate law component.  The bar review course and workshops              
          were offered twice a year coinciding with the testing times for             
          the California bar examination, which is given in February and              
          July of each year.  LECC also offered a preliminary bar review              

               1 The stipulation of facts and the attached exhibits are               
          incorporated herein by this reference.                                      





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