Joseph B. Leonard and Dorothy A. Cole Leonard - Page 13

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          loss, and petitioners did not take the loss on their original 1985          
          tax return.   We are not convinced that petitioners’ subsequent             
          "reliance" on White’s advice was reasonable.                                
               Petitioners obviously knew prior to 1985 that they would not           
          recover the money they transferred to Robert.  Thus, even assuming          
          arguendo, that petitioners sustained a theft loss as a result of            
          their transactions with Robert, it is clear that petitioners’               
          attempt to take the loss for 1985 was improper.  We reach this              
          conclusion, in part, because by the end of 1984, petitioners knew           
          that Robert and Suzette had.  no money, were unemployed, and ,had           
          no ability to repay them.  In our opinion, petitioners claimed the          
          deduction in 1985 because the period of limitations had closed on           
          their 1983 and 1984 returns.                                                
               Petitioners stated on their 1983 return that the large                 
          increase in the deduction for interest expense was because of money         
          borrowed "to assist family members with financial difficulties,"            
          and that the funds "were not used to acquire investment property or         
          other assets".  They did not change their position when filing              
          returns in later years, including the years in issue.  At trial,            
          however, they maintained that money was borrowed from banks by Mrs.         
          Leonard because she was having financial difficulties, and that the         
          funds were invested by Robert so that she could repay her debts.            
          We do not accept as credible petitioners’ testimony in this regard.         
               Moreover, the claimed deduction was clearly inflated.  The             
          initial deduction taken in 1985 was for $650,000, although at trial         
          petitioners were unable to prove that they lost that much.  On              

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