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their returns as guaranteed payments is appropriate for two
reasons. We decline to accept respondent's first explanation
supporting partial recognition because it is a product of her
embezzlement theory. However, respondent also argues that such
partial recognition is appropriate despite her embezzlement
theory. Respondent contends that petitioners have not
established whether and to what extent the unreported income
stemming from the cashier's checks and personal expenses is
included in the numbers provided on their Schedules E. As a
consequence, respondent has elected to recognize only those
amounts identified by petitioners as guaranteed payments.
We are unpersuaded by respondent's fleeting explanation of
her rationale for making this election. Accordingly, we find
that the computation to be used in calculating petitioners'
unreported income must involve a reduction for the entire amount
of gross income identified by petitioners as received from
Fruitland on their Schedule E for each taxable year at issue.
Issue 3. Civil Fraud
We now turn to the question of whether petitioners are
liable for the addition to tax for civil fraud for the taxable
years at issue. In light of petitioner's guilty plea to criminal
tax fraud with respect to his return for taxable year 1989,
petitioners concede that the doctrine of collateral estoppel
operates to prevent petitioner from contesting the civil fraud
issue with respect to taxable year 1989. This concession is
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