5
litigation regarding certain of the ventures was brought by
certain investors in the Texas courts against petitioner, and
substantial judgments have resulted against him, which as yet
remain unpaid. The Texas Bar Association also proceeded in the
courts against petitioner for his unethical conduct in
mishandling and misapplying clients' funds that were intrusted to
his care. Petitioner agreed to substantial restitution to
various investors for their funds which had been misapplied, but
it is not shown that such restitution has occurred. Petitioner
was found guilty of improper conduct in the handling of his
clients' funds; in lieu of outright disbarment, he was placed on
probation for a period of 10 years.
Upon examination of petitioners' returns for the years in
issue here, respondent determined that petitioner had
misappropriated $762,685 in 1987, which had been spent either for
his own personal purposes or to relieve the financial necessities
of other joint ventures in which he was the only common
principal, and respondent added such amount to petitioner's
income. Petitioners challenge this determination.
The statutory notice of deficiency in issue herein also
determined that petitioner, as principal of the various ventures,
had unreported capital gains in 1987 of $653,787, as the result
of certain of the joint ventures that were sold, went to closing
and were paid off.
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