John R. Ray IV and Rochelle L. Ray - Page 6

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         Payments Made by Mr. Ray to Ms. Bader                                        
              The arbitration agreement did not require alimony payments to           
         begin until April of 2002.  The divorce decree, likewise, did not            
         require alimony payments to begin until April 1, 2002.                       
         Nevertheless, at the end of March of 2002, Mr. Ray made a payment            
         to Ms. Bader--check No. 1095, dated March 22, 2002, in the amount            
         of $3,000.                                                                   
              During the examination of his return by respondent, Mr. Ray             
         substantiated that he paid alimony of $16,000 between April 1 and            
         August 1, 2002.  All of the payments were made by personal checks,           
         and some of the checks included both alimony and child support.              
         The final payment was check No. 1219, which bore the notation of             
         “Alimony-Final”.  A summary of the substantiated alimony payments            
         follows:                                                                     
              Check No.   2002 Date    Amount    Alimony    Child Support             
              1109        Apr. 8       $3,000    $2,000     $1,000                    
              1114        Apr. 21      3,000     2,000      1,000                     
              1129        May 5        3,000     2,000      1,000                     
              1161        June 5       2,0001    2,000      --                        
              1162        June 6       2,000     2,000      --                        
              1177        June 21      2,000     2,000      --                        
              1199        July 8       2,000     2,000      --                        
              1219        July 24      2,000     2,000      --                        
         The 2002 Deficiencies                                                        
              Mr. Ray married his current wife, Rochelle Ray, in 2002.                
         They jointly filed a 2002 Form 1040, U.S. Individual Income Tax              
         Return, prepared by Ernst and Young LLP, on which they claimed an            


               1Although the exhibits prepared by Mr. Ray indicated that              
          check No. 1161 was a check for $3,000, the bank statement shows             
          that the correct amount is $2,000.                                          



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