Frank H. and Marla C. Black - Page 8

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          $3,000 to each of their children Dominique (born on October 27,             
          1983) and Jonathan (born on May 31, 1985).  Petitioners claimed             
          Schedule C deductions on their 1992 joint return for payments of            
          $5,240 made to each of their children Dominique and Jonathan.               
          The notice of deficiency treated the full amounts of the payments           
          by Mr. Black to Dominique and Jonathan during 1991 and 1992 as              
          nondeductible for purposes of respondent’s net worth computation.           
               Mr. Black issued Forms 1099-MISC reporting the payments made           
          to Dominique and Jonathan in 1991 and 1992.  Federal and State              
          income tax returns were filed for Dominique and Jonathan for the            
          taxable years 1991 and 1992 reporting the amounts shown on Forms            
               On December 3, 1991, Mr. Black met with C.P.A. Walter                  
          Martinson to discuss various aspects of Mr. Black’s business.               
          One of the items discussed was the possibility of Mr. Black’s               
          paying his children.  C.P.A. Martinson advised putting money in             
          an account for them in their names.                                         
               During the taxable year 1991, Mr. Black was a general agent            
          for Clark Capital Management Group (Clark Capital) and received             
          commissions from Clark Capital of $21,843.36.  Petitioners did              
          not report any of the Clark Capital commission income on their              
          1991 joint return.                                                          
               On July 26, 1985, petitioners submitted a consumer loan                
          application to Home Federal (Home Federal application).  On the             

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