Robert K. & Dawn E. Lowry - Page 4

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               AAL issued to the partnership a Form 1099-A, Acquisition or            
          Abandonment of Secured Property, indicating that the partnership            
          had an outstanding debt of $3,218,046 on the Fitch property and             
          that the Fitch property had been surrendered to AAL on December             
          15, 1993, at an appraised value of $1,915,000. On October 14,               
          1994, the partnership filed an amended return for 1993, which               
          included a statement that the information contained in the Form             
          1099-A issued by AAL was "wholly inaccurate" and that AAL erred             
          in reporting the transaction during 1993.  The statement                    
          indicated that a deed in lieu of foreclosure was delivered to AAL           
          on May 27, 1994, and further indicated that the Fitch property              
          had been transferred to Lowry Wells Limited Liability Company               
          which "will correctly report this 1994 event on a 1994 return and           
          realize and recognize any gains (or losses) as is appropriate in            
          that filing."                                                               
               Following an examination of the partnership's return for               
          1994, respondent issued a 30-day letter to the partnership                  
          including an examination report which stated in pertinent part:             
          "On 12-15-93, it [the partnership] surrendered the property back            
          to the Lender [AAL]".  Respondent subsequently issued a notice of           
          deficiency to petitioners determining deficiencies in and                   
          accuracy-related penalties with respect to their Federal income             
          taxes for 1994 and 1995.  Contrary to the examination report                
          attached to the 30-day letter, respondent determined that the               

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