National Bancorp of Alaska, Inc. - Page 3

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          Gulfstream).  During 1996, the Gulfstream was used partly in                
          pursuit of NBA’s trade or business for transportation purposes              
          and partly for personal entertainment use by certain employees              
          (the employees) of NBA.4  The net expenditures, including                   
          depreciation, incurred by Aviation during the taxable year 1996             
          in connection with the operation and ownership of the Gulfstream            
          totaled $2,548,990.  On the basis of an allocation according to             
          flight miles, $1,814,894, or approximately 71.2 percent, of the             
          net expenditures was attributed to business use.  The remaining             
          portion, $734,096, or approximately 28.8 percent, was attributed            
          to personal entertainment use.  Petitioner deducted the entire              
          $2,548,990 related to the operation and ownership of the                    
          Gulfstream on its 1996 Federal income tax return.                           
               The personal entertainment use of the Gulfstream was treated           
          as fringe benefit compensation to the recipient employees.  On              
          the basis of the valuation rules set forth in section 1.61-21(g),           
          Income Tax Regs., NBA determinated that the value of the fringe             
          benefits received by the employees on account of the personal               
          entertainment use of the Gulfstream totaled $131,575 for the                
          taxable year 1996.  The amount of the fringe benefits                       
          attributable to each employee was included on the employees’                
          respective Forms W-2, Wage and Tax Statement.  The $2,548,990               

               4The personal entertainment use consisted of hunting,                  
          fishing, vacation, and other similar trips for certain employees            
          of NBA.                                                                     

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