Edward R. Arevalo - Page 3

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          all Rule references are to the Tax Court Rules of Practice and Procedure.   
                                     Background                                       
               This case was submitted on a stipulation of facts and                  
          supplemental stipulation of facts, and the stipulated facts are             
          incorporated in our findings by this reference.  Petitioner                 
          resided in Austin, Texas, at the time that he filed his petition.           
          Petitioner’s Investment in the Pay Phones                                   
               On June 7, 2001, petitioner entered into a contract with               
          American Telecommunications Co., Inc. (ATC), a wholly owned                 
          subsidiary of Alpha Telcom, Inc. (Alpha Telcom), entitled                   
          “Telephone Equipment Purchase Agreement” (ATC pay phone                     
          agreement).  Under the terms of the ATC pay phone agreement,                
          petitioner paid $10,000 to ATC, and ATC provided him with legal             
          title to the “telephone equipment” that was purportedly described           
          in an attachment to the ATC pay phone agreement entitled                    
          “Telephone Equipment List”.  The attachment, however, did not               
          identify any pay phones subject to the agreement.  The ATC pay              
          phone agreement also included the following provision:                      
               1.   Bill of Sale and Delivery                                         
               a.   Delivery by Seller shall be considered complete                   
               upon delivery of the Equipment to such place(s) as are                 
               designated by Owner.                                                   
               b.   Owner agrees to take delivery of Equipment within                 
               (15) fifteen business days.  If Seller has not                         
               delivered the equipment within (90) ninety days, Owner                 







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