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3. Income Tax Refund
Petitioner participated in a scheme to defraud the U.S.
Government. Specifically, petitioner and William Arias
fraudulently prepared and filed a 1987 Federal tax return
claiming a refund under the name Chris Arias. Chris Arias,
William Arias' brother, never received the $4,168 refund check
from the return that was filed on his behalf. Instead, William
Arias received the check, cashed it, and delivered $2,000 in cash
to Mr. Beretta for his participation in the scheme. Mr. Beretta
did not report the $2,000 as income on his 1988 Federal
individual income tax return. Respondent included the $2,000 in
petitioner's income for the 1988 taxable year.
4. Capital Losses
On his 1987 tax return, petitioner claimed a capital loss
from the sale of stock in a Strong Total Return Fund in the
amount of $2,558. At trial, petitioner presented documentary
evidence substantiating the claimed loss. Respondent disallowed
the $2,558 loss in his 1987 notice of deficiency.
Petitioner claimed capital losses of $300, $3,000, $3,000
and $2,400 from bad debts for the tax years 1987, 1988, 1989, and
1990, respectively. The bad debts were the result of
petitioner's payments to creditors for obligations of the
restaurants for which he was a guarantor. In 1987, petitioner
paid $300 for liabilities owed to PG&E, an electrical supplier of
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