John Bowden, Inc. - Page 4

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          stated basis of $97, office furniture and equipment with a stated           
          basis of $241, and insurance premium renewals with a stated basis           
          of $245,000.                                                                
               In return, the corporation issued 1,000 shares of stock to             
          Mr. Bowden.  The corporation also assumed a $220,468 liability,             
          evidenced by a note, that Mr. Bowden had incurred to acquire his            
          ex-wife's community property interest in the sole proprietorship.           
          Assumption of the debt by the corporation did not relieve                   
          Mr. Bowden of his primary liability on the note.                            
               Upon incorporation, an account payable of $60,009 was                  
          created on the books of the corporation to pay cash to Mr. Bowden           
          or pay other personal expenses on his behalf in the amounts of              
          $15,768, $21,540, and $23,951, for calendar years 1991, 1992, and           
          1993, respectively.5                                                        
               Respondent determined deficiencies in the Bowdens' Federal             
          income taxes for 1991, 1992, and 1993.  Respondent determined               
          that in 1991 the Bowdens had recognized $280,477 in net capital             
          gain upon incorporation of their business.  This gain was                   
          calculated by characterizing as boot the $60,009 account payable            

               5Although the parties stipulate the yearly amounts paid to             
          Mr. Bowden, the Court notes that the sum of these three payments            
          exceeds the $60,009 account payable recorded on the books of the            
          corporation.  It is unclear to what source the additional funds             
          paid to Mr. Bowden were attributable.                                       

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