Estate of Melvin W. Ballantyne, Deceased, Jean S. Ballantyne, Independent Executrix, and Jean S. Ballantyne - Page 12

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          Ballantyne Backelsberg (Carolyn), Russell and Clarice’s daughter.           
          For the taxable year 1995, Carolyn provided Mr. Feldmann with               
          information regarding intangible drilling costs (IDCs) paid by              
          Russell in the taxable year 1995.  A portion of the IDCs deducted           
          by Russell in 1995 had actually been reimbursed to him by                   
          Ballantyne Oil and Gas, Inc. during that year.  Mr. Feldmann was            
          not informed that Russell had been reimbursed for approximately             
          $97,790 of those expenses.  The amount Russell claimed as a                 
          Schedule E deduction for production taxes in the taxable year               
          1995 was based on the information provided to Mr. Feldmann.                 
               On June 16, 1999, respondent issued notices of deficiency to           
          the estate for its taxable years 1994 and 1995.  In addition to             
          other adjustments, respondent disallowed the estate’s claimed               
          theft loss of $560,900 in 1994 on the grounds that the estate had           
          not established (1) there was a theft loss and (2) the theft loss           
          was the estate’s to claim.  In its petition, the estate alleged             
          that respondent erred in increasing its income by $560,900                  
          because that amount was the income of Russell and was not taxable           
          to the estate.                                                              
               On July 21, 1999, respondent issued a notice of deficiency             
          to Russell and Clarice for their taxable years 1993, 1994, and              
          1995.  In addition to other adjustments, respondent increased               
          Russell and Clarice’s gross income for 1994 by $751,988.                    
          Respondent identified this adjustment under the heading “ORDINARY           

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