Martin and Suzanne Higbee - Page 4




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          Suzanne Higbee, president, and Martin Higbee, secretary.  The               
          agent appointed for the corporation was Dan Preiser.  In 1995 Mr.           
          Preiser, petitioners' accountant, prepared Form SS-4, Application           
          for Employer Identification Number, and Form 2553, Election by a            
          Small Business Corporation (Under Section 1362 of the Internal              
          Revenue Code), for the corporation.  The forms were not filed in            
          1995 because the business had not yet begun in that year.  In               
          early 1996, Mr. Preiser instructed Mr. Higbee to file both Forms            
          SS-4 and 2553.                                                              
               Petitioners filed Federal income tax returns for 1997 and              
          1998, each with an attached Schedule E, Supplemental Income and             
          Loss (From rental real estate, royalties, partnerships, S                   
          Corporations, estates, trusts, REMICs, etc.).  The Schedules E              
          indicate that each petitioner has a 50-percent ownership interest           
          in "CACTUS QUAIL ENT INC".  The corporation is listed as an S               
          corporation with the employer identification number (EIN) 86-               
          0819375.  Each petitioner deducted an S corporation loss for each           
          year.                                                                       
               The corporation filed Forms 1120S, U.S. Income Tax Return              
          for an S Corporation, for calendar years 1997 and 1998, attaching           
          a Schedule K-1, Shareholder's Share of Income, Credits,                     
          Deductions, Etc., for each of petitioners.  Mr. Preiser, the                
          designated corporate agent, signed as the preparer of the                   
          returns.                                                                    






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