- 109 - 3. Also on the same day, Associates drew a check on account No. 13022 made payable to the Associates Trust account, No. 13030. It is deposited into that account. The client claimed a deduction of the $30,000 prepaid interest on his 1971 Federal income tax return. The promoter was convicted for assisting in the preparation of a false tax return. The promoter argued on appeal that the interest deductions were lawful and that the evidence was insufficient to sustain a conviction. The Court of Appeals disagreed and affirmed the conviction. It stated: "The most important aspect of the operations here performed is that there was no substance behind the forms employed." Id. at 1152. It found the promoter's arguments to be "without any merit." Id. at 1153. The investment circles in the cases before us share important similarities with Drobny, Karme, and Clardy. Like those cases, the cases before us employed circular obligations with no economic effect. Fred, as the promoter, designed and controlled the programs so that they would be isolated from commercial reality. They generated substantial tax benefits, with no events of economic substance. As in Drobny, Karme and Clardy, the circular transactions before us cannot sustain the tax deductions claimed by petitioners.34 34These considerations apply to all the partnership losses at issue. For the years 1982 through 1986, a substantial portion of the partnerships' first-year losses consisted of "professional and management fees". These were the management fees paid to (continued...)Page: Previous 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 Next
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