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Beginning in 1988, petitioners became involved in a complex
and circuitous relationship with Joseph. Petitioners’
involvement with Joseph began with $30,000 and increased to over
$200,000 by July 1990. The monthly "interest" paid by Joseph was
either paid to petitioners or credited as an increase in their
investment. Petitioners did not report any interest from these
transactions on their Federal income tax returns, including the
1990 return. M&L also made payments totaling $10,000 toward
petitioners' purchase of a motor vehicle.
Also beginning sometime in 1988, petitioner became involved
with Joseph/M&L in a check exchanging arrangement that ultimately
became part of a check kiting scheme. M&L had cash-flow
problems, and the goal of the scheme was to obtain some "float"
in order to extend the time to pay commitments. The kiting also
made it appear that M&L had more cash because of the inflation
caused by the kiting activity. Under the arrangement, M&L would
draw a check in favor of petitioner, and petitioner, in turn,
would draw several checks totaling approximately the same amount
to M&L. For 1989 and 1990, M&L's checks to petitioner exceeded
petitioner's checks to M&L as follows:
1989 1990
Amount from M&L $5,866,328 $3,263,124
Amount to M&L 5,815,280 2,571,129
Excess received by
petitioner 51,048 691,995
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Last modified: May 25, 2011