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Mr. Premji filed his 1990 Federal income tax return on April
15, 1991. Prior thereto, Mr. Premji knew of his forthcoming
involvement in the Amazing Enterprises lawsuit.
Mr. Premji filed a proof of claim in the M&L bankruptcy
proceeding on May 16, 1991.
In the notice of deficiency dated February 16, 1994,
respondent disallowed Mr. Premji's claimed theft loss of $58,000
on the ground that no deductible loss was sustained in 1990.
Petitioner Carl John Norby
Mr. Norby has a degree in mechanical engineering. He was
employed by IBM developing business machines until his retirement
a few years ago. He is not an accountant or financial analyst.
Mr. Norby invested in M&L to increase his retirement income.
Celetha Reyos, one of M&L's sales representatives, gave him M&L's
financial statements, history, resumes of the three principals,
and a description of investment programs in August 1990. After
reviewing the information, Mr. Norby and an IBM co-worker, Larry
E. Rittenhouse, met with Dale Krug, M&L's vice-president, on
September 20, 1990. Mr. Krug showed Mr. Norby and Mr.
Rittenhouse M&L's 1988 and 1989 financial statements and a
partial financial statement for 1990. Mr. Norby asked various
questions about M&L's operations, including how M&L was able to
pay investors the promised high rates of return and whether the
company had any problems. Based on the financial statements and
Mr. Krug's responses to his questions, Mr. Norby invested $50,000
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