Lucian T. Baldwin, III - Page 5

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          sole proprietor under the name of Baldwin Commodities (BC).  In             
          1990, petitioner incorporated the proprietorship and became sole            
          shareholder of BCC, an S corporation.                                       
               During the years at issue, petitioner was a very successful            
          trader in the bond pit at the Chicago Board of Trade.                       
          Petitioner’s success was due, at least in part, to his financial            
          resources, reputation, and relationships with brokers and other             
          traders in the bond pit.  His financial resources enabled him to            
          trade with brokers representing institutional clients and other             
          traders with large volume orders.                                           
               In 1987, petitioner earned $19,160,059 from his bond trading           
          activity.  During the years at issue, the amount of time                    
          petitioner spent in the bond pit decreased as a result of his               
          marital problems and the divorce litigation, as well as health              
          problems that followed a plane crash in November 1991.                      
          Petitioner’s income from bond trading during the years at issue             
          was as follows:                                                             
                         Year                     Income                              
                         1988                $7,254,066                               
                         1989                4,570,760                                
                         1990                5,269,504                                
                         1991                4,134,403                                
                         1992                3,045,776                                
               During the years at issue, petitioner began to diversify his           
          business and investment interests and formed several new                    
          companies.  For example, in December 1988, petitioner purchased             

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