-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
$677,652.
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