Stanley P. Zurn - Page 12

          Cities’ image, viewed from the perspective of Ms. Jackson’s                 
          letter, was flat and without potential.  Ms. Jackson attempted to           
          assure petitioner that she intended to repay him.  Repayment,               
          however, would have to come from unidentified sources and/or                
          uninitiated businesses that Ms. Jackson intended to start.  One             
          such idea concerned an entity to be entitled "Dancer", in which             
          Ms. Jackson offered petitioner 25,000 shares with a stated or par           
          value of $750,000.                                                          
               On April 17, 1990, Cities filed for relief under chapter 11            
          of the U.S. Bankruptcy Code.  Petitioner was not listed as a                
          creditor in Cities’ bankruptcy petition.  However, the proceeding           
          was converted to a liquidating bankruptcy, under chapter 7 of the           
          U.S. Bankruptcy Code.  In that connection, on June 26, 1991, Ms.            
          Jackson filed an amended bankruptcy petition listing petitioner             
          as a creditor for $659,000.  As of the end of 1988, petitioner              
          believed that his claim against Ms. Jackson or Cities was                   
          worthless, and he did not commence any action against them to               
          recover his funds.  On petitioner's 1988 return, his accountant             
          reported a long-term capital loss in the amount of $186,280 in              
          connection with funds advanced.  Petitioner now claims an                   
          ordinary loss for 1986 and 1987 or 1988 with respect to the                 

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