Richard C. and Hattie M. Martin - Page 3




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               All section references are to the Internal Revenue Code and            
          all Rule references are to the Tax Court Rules of Practice and              
          Procedure.                                                                  
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated, and the stipulation of         
          facts is incorporated in our findings by this reference.                    
               Petitioners Richard C. (Richard) and Hattie M. Martin, husband         
          and wife, and petitioners William L. (William) and Sylvia L.                
          Martin, husband and wife, resided in Rolling Hills Estates,                 
          California, at the time they filed their respective petitions in            
          this Court contesting respondent's determinations.  Richard and             
          William are brothers.                                                       
               Richard is a principal shareholder of a corporation that is            
          one of the largest commercial drywall, framing, and plastering              
          contractors in the Los Angeles area.  For many years, he had an             
          interest in car racing.                                                     
          Formation of Cola, Inc.                                                     
               In 1988, Richard and Raul Negrete (Raul) (formerly, the                
          general manager of L.A. Billet, a manufacturer of race car                  
          crankshafts) decided to form a corporation that would engage in the         
          business of manufacturing automotive crankshafts for race cars (the         
          business).  Both agreed to contribute $100,000 to the corporation.          
               On June 22, 1988, Richard's attorney, Mark A. Treadwell, of            
          Mantalica & Treadwell, filed the necessary corporate documentation          





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