James Tinnell - Page 14

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          decorative rock has grown steadily, and petitioner continues to             
          generate substantial income from the sale of decorative rock.               
               G.  Financing of Mining Activities                                     
               Petitioner financed most of his mining activity with                   
          royalties from Zila, the sale of Zila stock, and the exercise of            
          stock options in 1993.  Since 1980, no outside investor has                 
          supplied capital for any of petitioner’s mining activities.                 
          Petitioner sold shares of Zila stock when he needed money and               
          borrowed money secured by his Zila stock.                                   
          IV.  Petitioner’s Tax Returns                                               
               A.  Mining Activities                                                  
               On petitioner’s Federal income tax returns for tax years               
          through 1997, petitioner treated all of his mining activities as            
          a single Schedule C activity doing business as Jetco Mining.19              
          For the years 1980 through 1988, petitioner had no income from              
          mining activities.  During the years from 1989 through 1999,                
          petitioner reported, either directly on a Schedule C or                     
          indirectly through JEI, gross revenues and expenses from his                
          mining activities as follows:                                               

               19JEI initially made an election to be treated for tax                 
          purposes as a “pass-through” S corporation but did not file any             
          tax returns until 1998.  Respondent does not assert that any                
          expenses claimed by petitioner with respect to the taxable years            
          at issue are disallowable because of the failure of JEI to file             
          Federal income tax returns.                                                 

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