MINNESOTA COUPLE DISPUTES IRS' ADDITIONS TO INCOME.

The Petitioners hereby petition for a redetermination of the deficiencies set forth by the Commissioner of Internal Revenue in her notice of deficiency (bearing symbols: M. Dusek ESP:STP) dated April 1, 1992, and as the basis for their case allege as follows:

1. The Petitioners are individuals with legal residence now at 79 75th Street Northwest, Rice, Minnesota 56367-9802. The Petitioners' identification (social security) numbers reflected in the subject tax returns filed by Raymond C. Schlichting and Marlys A. Schlichting are 470-34-6556 and 477-42-4008, respectively. The returns for the periods here involved were timely filed with the Office of the Internal Revenue Service at Kansas City, Missouri.

2. The notice of deficiency (a copy of which, including so much of the statement and schedules accompanying the notice as is material, is attached hereto and marked Exhibit A) was mailed to the Petitioners on April 1, 1992, and was issued by the Office of the Internal Revenue Service at St. Paul, Minnesota.

3. The deficiencies as determined by the Commissioner are in self-employment taxes for the calendar year 1988 in the amount of $211.00 and for the calendar year 1990 in the amount of $379.00 all of which are in dispute.

4. The determination of tax set forth in the said notice of deficiency is based upon the following errors:

(a) For the calendar year 1988, the Commissioner erred in determining that $1,622.00 the Petitioners received from Jack Frost, Inc. was earnings from self-employment.

(b) For the calendar year 1990, the Commissioner erred in determining that $2,953.00 the Petitioners received from Jack Frost, Inc. was earnings from self-employment.

5. The facts upon which the Petitioners rely as the basis for their case are as follows:

(a) The Petitioners are the owners of a poultry growing facility (the "Facility") located in Rice, Minnesota.

(b) Jack Frost, Inc. is a wholly-owned subsidiary of JFC, Inc. JFC Inc. and its subsidiaries are primarily engaged as a fully vertically integrated producer and marketer of premium price chicken products that are sold primarily to retail grocery stores and chains and institutional buyers in the Upper Midwest.

(c) Petitioners entered into a Growing Agreement (the "Agreement") with Jack Frost, Inc. pursuant to which Jack Frost, inc. rented the Facility from the Petitioners during the calendar years 1988 and 1990 for the purpose of raising broiler chickens.

(d) Pursuant to the terms of the Agreement, the Petitioners were not required to and did not, in fact, materially participate in the production process of raising the broiler chickens owned by Jack Frost, Inc.

(e) Under the terms of the Agreement, the Petitioners were responsible for (i) repairing, maintaining, and insuring the Facility; (ii) cleaning the Facility prior to the arrival of a new flock and following the loadout of each flock; (iii) culling and disposing of dead birds; and (iv) keeping roadways to the Facility in good repair and clear of snow.

(f) For the use of the Facility, Jack Frost, Inc., made rental payments to the Petitioners of $22,441.00 in 1988 and $24,288.00 in 1990. These payments were reported by Jack Frost, Inc. to the Petitioners as rental income on Forms 1099.

(g) The Petitioners reported the rental payments received from Jack Frost, Inc. in 1988 and 1990, as rental income on Schedule E on their 1988 and 1990 U.S. individual income tax returns.

WHEREFORE, Petitioners pray that this Court may hear the case and determine that:

1. The Commissioner erred as alleged in each assignment of error set forth in paragraph 4 above;

2. There are no deficiencies in self-employment taxes for the calendar years 1988 and 1990; and

3. Give such other and further relief as the Court deems fit.

Respectfully submitted,