Anthony and Linda Walters - Page 20

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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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