Dereco, Inc. - Page 4




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                    (p)  The remaining $357,070.00 of the                             
               subcontractor expenses described in subparagraph (n),                  
               above, were never paid or incurred by petitioner.                      
                    (q)  Petitioner deducted a depreciation expense in                
               the amount of $93,208.00 on its tax return for the year                
               ended September 30, 1989.                                              
                    (r)  Of the depreciation expense described in                     
               subparagraph (q), above, $37,058.00 was taken on                       
               equipment not owned by petitioner and/or not in                        
               existence.                                                             
                    (s)  Petitioner deducted repairs and maintenance                  
               expenses in the amount of $254,708.00 on its tax return                
               for the year ended September 30, 1989.                                 
                    (t)  Of the repairs and maintenance expense                       
               described in subparagraph (s), above, $37,780.00 was                   
               neither paid nor incurred.                                             
                    (u)  Petitioner deducted a telephone expense in                   
               the amount of $8,128.00 on its return for the year                     
               ended September 30, 1989.                                              
                    (v)  Of the telephone expense described in                        
               subparagraph (u), above, $4,860.00 was neither paid nor                
               incurred.                                                              
                    (w)  Petitioner deducted an advertising expense in                
               the amount of $88,102.00 on its tax return for the year                
               ended September 30, 1989.                                              
                    (x)  Of the advertising expense described in                      
               subparagraph (w), above, $20,307.00 was neither paid                   
               nor incurred.                                                          
                    (y)  Petitioner deducted a dues and education                     
               expense in the amount of $7,913.00 on its tax return                   
               for the year ended September 30, 1989.                                 
                    (z)  Of the dues and education expense described                  
               in subparagraph (y), above, $3,130.00 was neither paid                 
               nor incurred.                                                          
                    (aa)  Petitioner deducted as other costs equipment                
               rental in the amount of $48,438.00 on its tax return                   
               for the year ended September 30, 1989.                                 
                    (ab)  Of the equipment rental cost described in                   
               subparagraph (aa), above, $28,500.00 was neither paid                  
               nor incurred.                                                          
                    (ac)  Petitioner deducted on its tax return for                   
               the year ended September 30, 1989, subcontractor                       
               expenses in the amount of $563,402.00.                                 
                    (ad)  Petitioner only paid or incurred $366,822.00                
               of the subcontractor expenses described in subparagraph                
               (ac), above.                                                           
                    (ae)  The remaining $196,580.00 of the                            
               subcontractor expenses as described in subparagraph                    





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