Charles E. and Jacquelyn Yates - Page 2

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          Procedure.  After concessions, the issue remaining for                      
          determination is whether certain transfers from Adena Fuels, Inc.           
          (Adena), to Fox Trot Corp. (Fox Trot), increased petitioners’               
          basis in Fox Trot.                                                          
                                  FINDINGS OF FACT                                    
               Charles and Jacquelyn Yates (petitioners) resided in                   
          Clearwater, Florida, when they filed their petition.                        
               During 1993 through 1996, Mr. Yates was the sole                       
          shareholder, officer, and director of several mining and mining-            
          related corporations (mining companies), including Adena, an S              
          corporation, and Adena Processing Company (Adena Processing),               
          operating in Eastern Kentucky.  Mrs. Yates is not, and has never            
          been, a shareholder, officer, or director of any of the mining              
               From 1993 through 1996, Mr. Yates employed Larry Adams, a              
          certified public accountant.  Mr. Adams kept the books for                  
          petitioners and their companies.  Because of Mr. Yates’ frequent            
          unavailability, Mr. Adams had the authority to sign Adena’s                 
               From 1993 through 1996, petitioners wrote 409 checks on                
          Adena’s account, totaling $1,831,156, for various personal                  
          expenses.  In addition, at Mr. Yates’ direction, Adena personnel            
          wrote 113 checks, totaling $2,231,248, to or for petitioners.               
          These payments were charged to Mr. Yates’ accumulated adjustments           

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