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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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