Eugene McClelland and Ione McClelland - Page 3

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          worked as an electroencephalograph technician at the Rochester              
          State Hospital in Rochester, Minnesota.  She subsequently                   
          obtained a job with International Business Machines in its                  
          manufacturing department, but the record does not indicate how              
          long she held the job.  From 1987 until 1994, Ms. McClelland                
          taught a part-time physical fitness program at St. John’s                   
          Hospital in Red Wing, Minnesota.  However, the majority of Ms.              
          McClelland’s time was dedicated to managing petitioners’ home,              
          which included growing and canning produce for the McClelland               
          family and raising their children.                                          
          Red Wing River Towing, Inc.                                                 
               Red Wing River Towing, Inc. (Red Wing), was a tugboat towing           
          service corporation.  Red Wing elected to be taxed as an S                  
          corporation on November 1, 1995.  Red Wing was taxed as an S                
          corporation for the years in issue, with a fiscal tax year ending           
          on October 31.  The Schedule K-1, Shareholder’s Share of Income,            
          Credits, Deductions, etc., attached to Red Wing’s Form 1120S,               
          U.S. Income Tax Return for an S Corporation, for its fiscal tax             
          year ended October 31, 1997, identified Mr. McClelland as a 50-             
          percent shareholder and Ms. McClelland as a 50-percent                      
          shareholder.  Both Mr. McClelland and Ms. McClelland were                   
          officers of Red Wing during the years in issue.  Specifically,              
          Mr. McClelland was its president, and Ms. McClelland was its                
          secretary.                                                                  






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