Judith A. Madden - Page 5

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               Petitioner and Mr. Sturges received a combined income of               
          $1,714,931 during 2000.                                                     
               The price of Cisco stock declined, and by late December 2000           
          Paine Webber informed petitioner and Mr. Sturges that the price             
          of Cisco shares had dropped to $34 or $35, precipitating a margin           
          call.  Petitioner and Mr. Sturges sold some of the Cisco shares             
          to pay the margin call.  Petitioner and Mr. Sturges held the                
          remaining Cisco shares.  Petitioner and Mr. Sturges lost most of            
          the funds invested in the stock.                                            
               Petitioner and Mr. Sturgis own a four-bedroom, 2�-bath                 
          residence.  Before April 2001, a mortgage on the residence dated            
          December 15, 1998, secured a $377,550 debt.  In April 2001,                 
          petitioner and Mr. Sturges refinanced the residence.  The new               
          mortgage secured a debt of $358,000.                                        
               In April 2001, petitioner’s accountant informed petitioner             
          that her and Mr. Sturges’s 2000 Federal income tax would exceed             
          the amount withheld by Cisco by approximately $141,000.                     
          Petitioner called both Cisco and Paine Webber because she thought           
          there was an error regarding the amount withheld and/or set aside           
          to pay taxes.                                                               
               Petitioner and Mr. Sturges filed for an automatic extension            
          to August 15, 2001, to file their 2000 return.  They filed a                
          joint Form 1040, U.S. Individual Income Tax Return, for 2000 on             
          August 15, 2001.  On the 2000 return, they reported a total tax             

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