Edward Charles Jones - Page 4

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          involved building computers for airplanes and submarines for the            
          U.S. Navy (the Navy).  In 1989, petitioner retired from IBM.  At            
          that time, petitioner was living in Manassas, Virginia.                     
               Before his retirement, petitioner had discussions with his             
          contacts in the Navy in which they indicated their desire to have           
          petitioner consult for them.  Approximately 2 years after                   
          petitioner retired from IBM, he was contacted by Navy personnel             
          at Crystal City, Virginia, to discuss a formal consulting                   
          arrangement.  Soon thereafter, petitioner attended a meeting with           
          a group of Navy personnel, including a captain who, during the              
          meeting, called in a representative of the Navy’s contract                  
          administrator.  At that meeting petitioner negotiated to work on            
          a contract basis for the Navy at a rate of $50 per hour.   The              
          work would involve document review and extensive travel.                    
               The contract administrator for the Navy was a company called           
          Techmatics, which had headquarters in Fairfax, Virginia.  After             
          he commenced his services, petitioner submitted invoices to                 
          Techmatics from time to time listing his hours and mileage.                 
          Techmatics paid him by check for the hours worked and his                   
          expenses.  The checks listed petitioner as a “vendor”.  For the             
          first several years of their affiliation, prior to 1998,                    
          Techmatics reported these payments to petitioner on Forms 1099-             
          MISC, Miscellaneous Income, and petitioner reported the income on           
          his Federal income tax returns on Schedule C.                               

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