Stephen and Ann Schwalbach - Page 5

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               Therefore, your taxable income for 1994 is increased by                
               Passive losses as corrected:                                           
                    Loss from Schedule E, Property A, Part I     $1,670               
                    Loss from Schedule E, Part II                16,445               
               Total corrected passive losses                    18,115               
               Allowable passive income:                                              
                    Profit from Schedule E, Property C, Part I      877               
               Unallowable loss                                  17,238               
               On June 21, 1993, Dr. Schwalbach paid $16,050 for a 5/6                
          interest in 6,000 shares of stock in a corporation named                    
          Impression Delivery Corp. (Impression); the total purchase price            
          was $19,266.  Approximately 3 weeks later, the 6,000 shares were            
          sold for $7,374, and 6 days after the sale, Dr. Schwalbach                  
          purchased an interest in another 4,100 shares of Impression.                
          Petitioners did not recognize a loss in 1993 on the sale of the             
          stock because the C.P.A. considered the purchase-sale-purchase as           
          a "wash sale" under section 1091.  In 1994, petitioners, upon the           
          advice of the C.P.A., reported a short-term capital loss of                 
          $16,050 on their 1994 Schedule D, Capital Gains and Losses, with            
          respect to Impression's stock.  The C.P.A. rendered his advice              
          after ascertaining that Impression had ceased operations and was            
          facing litigation over allegedly fraudulent practices.                      
               Respondent disallowed the $16,050 loss reported by                     
          petitioners.  According to the notice of deficiency, "It has not            
          been established that the company known as Impression Delivery              
          Corp. was insolvent or out of business in the year 1994.                    
          Further, it has not been established that you had an adjusted               

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