Charles R. Godwin et al. - Page 5

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               Apart from withholdings from Mrs. Godwin’s teacher’s salary,           
          petitioners did not pay estimated taxes on any of their 1997                
          income.  Instead, during 1997, petitioners spent “a lot” of the             
          $1 million fee to build their residence in Atmore, Alabama (the             
          Atmore residence), which had a cost basis of $989,158.                      
          Petitioners also spent a portion of the $1 million fee to                   
          purchase 1,068 acres of timberland in Geneva County, Alabama (the           
          timberland).  Petitioner visited the timberland several times in            
          1998, primarily for recreational purposes but also to aid his               
          efforts to resell a portion of the property.  Petitioners also              
          made charitable contributions that substantially exceeded their             
          contributions in prior and subsequent years.                                
               Petitioners resided and owned real property in counties of             
          Alabama affected by various natural disasters in 1997 and 1998.             
          On May 3 and October 24, 1997, earthquake tremors occurred in               
          Escambia County, Alabama (hereinafter the May earthquake and the            
          October earthquake and collectively the 1997 earthquakes), where            
          petitioners were building the house that constitutes their                  
          principal residence.  On July 25, 1997, President Clinton                   
          designated three Alabama counties, including Baldwin County where           
          petitioners own a vacation house on the Gulf of Mexico (the bay             
          house), as disaster areas as a result of Hurricane Danny, which             
          occurred in July 1997.  On September 30, 1998, President Clinton            
          designated 14 Alabama counties, including Baldwin and Escambia              

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