Edwin A. Helwig - Page 5

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          existed.  As of July 1989, petitioner owned 88 percent of the                
          outstanding shares of Snacks stock.  Petitioner’s accountant and             
          the accountant’s wife jointly invested $100,000 in exchange for 4            
          percent of Snacks stock.  In addition to petitioner’s and his                
          accountant’s stock ownership in Snacks, during 1990, new                     
          investors Donald Parker purchased 5 percent of Snacks stock for              
          just over $150,000, and Al Marquez obtained 3 percent of Snacks              
          stock with a value exceeding $100,000.                                       
               Petitioner and the accountant had begun their professional              
          relationship during 1974.  During 1993, although the accountant              
          believed that Snacks would not be successful, he also believed               
          that the vending machine patent could have residual value for                
          future development and decided to pay petitioner $5,000 for                  
          petitioner’s shares in Snacks.  That sale caused petitioner to               
          claim a $115,000 loss, $100,000 of which was claimed as an                   
          “ordinary” loss under section 1244.3  This loss is not presently             
          at issue before the Court.                                                   
               Snacks entered into a relationship with K&H involving the               
          development and manufacture of a vending machine.  Expecting to              
          be repaid, K&H incurred costs in attempting to develop a                     
          merchantable vending machine.  Petitioner was designated as                  

               3  Section references are to the Internal Revenue Code as               
          amended and in effect for the years under consideration.  Rule               
          references are to this Court’s Rules of Practice and Procedure.              

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