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return with petitioner before completing it. Elias estimated
petitioner's losses from Swirl. Elias filed a request to extend
the time to file petitioner's 1988 tax return to August 15, 1989
(Form 4868). Petitioner estimated on the Form 4868 that he had
no additional tax liability for 1988. On August 19, 1989,
petitioner requested an extension of time to file his 1988 return
to October 15, 1989, which respondent granted.
Elias expected petitioner to receive a refund for 1988. In
calculating petitioner's potential tax liability, Elias concluded
that petitioner owed Swirl $42,500 ($312,500 that petitioner owed
to Swirl from the facility purchase minus $270,000 that Swirl
owed to petitioner from the May 1985 loan). He also concluded
that petitioner was entitled to deduct a bad debt loss of
$307,500 ($350,000 transferred to Swirl minus $42,500).
H. Petitioner's Financial Records
Petitioner was involved in a divorce proceeding from July
1988 to May 1989. He gave his financial records to the law firm
which represented him. After the divorce proceeding ended,
petitioner stored his financial records and other personal
belongings. Petitioner found the financial records in July 1990.
Petitioner filed his 1988 return on October 17, 1990. He
deducted $308,000 for his bad debt to Swirl. Petitioner claimed
a $20,486 refund. Respondent refunded that amount to petitioner
on November 19, 1990.
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