James Tinnell - Page 4

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          activity was “an active trade or business” or that it “has been             
          operated in a businesslike manner”.  Both parties treated this              
          language as raising an issue under section 183(a), which provides           
          that “In the case of an activity engaged in by an individual or             
          an S corporation, if such activity is not engaged in for profit,            
          no deduction attributable to such activity shall be allowed” (the           
          section 183 issue).  Alternatively, respondent determined that              
          “If the Schedule C activity is determined to be a legitimate                
          business,” the expenses were not ordinary and necessary business            
          expenses under section 162 (the section 162 issue).                         
               On October 9, 1997, petitioner filed a petition to                     
          redetermine the deficiencies, in which he alleged that each of              
          the proposed adjustments was erroneous.  In respondent’s answer,            
          filed on November 24, 1997, respondent denied petitioner’s                  
          allegations of error and also denied some of petitioner’s factual           
          allegations for lack of sufficient information.                             
               The parties resolved most of the issues prior to trial,3               
          leaving just two issues to be tried:  (1) Whether petitioner’s              

               3Prior to trial, the parties entered into two stipulations             
          of settled issues.  In the first such stipulation, petitioner               
          conceded three of the previously disputed adjustments.  In the              
          second such stipulation, petitioner conceded the adjustment with            
          respect to the exercise of stock options in Zila, Inc., and the             
          parties agreed on the disposition of adjustments relating to NOL            
          deductions and carrybacks for 1991 and 1993.  In the stipulation            
          of facts filed just prior to trial, the parties resolved the sec.           
          162 issue with respect to petitioner’s claimed mining expense               

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