Harland and Shirley Stonecipher - Page 3




                                         -3-                                          
               In 1972, petitioner founded Pre-Paid Legal, Inc. (Pre-Paid             
          Legal), as a corporation to provide prepaid legal services to the           
          public.  During 1976, Pre-Paid Legal went public with a listing             
          on the NASDAQ Exchange.  In 1986, Pre-Paid Legal stock was traded           
          on the American Stock Exchange, and as of the time of trial,                
          Pre-Paid Legal stock was traded on the New York Stock Exchange.             
          Since 1986, Pre-Paid Legal has been profitable.  As of the time             
          of trial, Pre-Paid Legal had accumulated $50 million in cash and            
          investment assets.                                                          
               During most of the years since 1976 and specifically during            
          the years in issue, petitioner has worked as a full-time officer            
          and employee of Pre-Paid Legal with such positions as chairman of           
          the board of directors, president, and chief executive officer.             
               In 1975, petitioners paid $40,000 for 40 acres of property             
          in Coal County, Oklahoma (the 40 acres).  Over the years since              
          1975, petitioners’ immediate family has occupied the residence on           
          the 40 acres.  Petitioners have improved the residence by adding            
          three rooms, a bath, a sunroom, a three-car garage, and a carport           
          at a total cost of $233,000.  Petitioners have also improved the            
          property immediately surrounding the residence by constructing              
          hound kennels at a cost of $90,000 and a well house, two storage            
          buildings, and a hay shed at a cost of $36,000.  The cumulative             
          cost of the 40 acres, the residence, and improvements described             
          above was $399,000.                                                         






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