Steven J. Romer - Page 14

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          petitioner's New York State criminal trial, was alleged to have             
          been embezzled by petitioner from his clients and the total                 
          additional $1,375,000 that petitioner received through his check-           
          kiting scheme, by forging checks on the New Gold account, and as            
          loan proceeds from William Marion.                                          
               The schedule below reflects petitioner's Federal income tax            
          returns as filed as well as the adjustments determined by                   
          respondent for each year:                                                   

                                        1988          1989          1990              
       Tax Return Reported Losses       ($  1,650)    ($    2,651)  ($   94,292)      
       Respondent's Determinations:                                                   
       $7,003,000 Embezzlement Income As                                              
        Alleged In State Court --                                                     
           Gabrielle Votano            741,000                                       
            Marion Family Trusts                      4,087,000                       
            Ira Saferstein                            975,900*                        
            Judith Ripps                                            1,200,000         
       $1,375,000 In Additional Income                                                
        Adjustments --                                                                
           Check Kiting                                            350,000           
            Bridgehampton Estates                                   575,000           
            William Marion                                            450,000         
            Total Adjustments To Income $741,000      $5,062,900    $2,575,000        

                 *  As indicated, respondent's notice of deficiency made an adjustment of
                  $975,900 with regard to petitioner's embezzlement from Saferstein. 
                   Respondent has not explained the $900 difference between the $975,000
                   petitioner embezzled from Saferstein and the amount of the above   
                   adjustment, and we treat the additional $900 reflected in respondent's
                   notice of deficiency as having been conceded by respondent.        
                                       OPINION                                        
          Collateral Estoppel And Petitioner's Embezzlement Income                    
               It is well established that gross income under section 61(a)           
          includes income earned from illegal activity such as                        





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