- 18 -
Purposefully engaging in sham transactions with the intent
to disguise ordinary income as capital gains is strong evidence
of fraud. See Fazzio v. Commissioner, 959 F.2d 630 (6th Cir.
1992), affg. T.C. Memo. 1990-608. Based on collateral estoppel,9
petitioner's receipt of the $23,334.50 was not for the sale of
the oil partnership interest. Instead, when Jack Ham paid
Commerce Bank $23,334.50 in satisfaction of petitioner's
outstanding debt at the bank, and subsequently acquired
petitioner's interest in the oil partnership, this amount was
paid by Ham and understood by petitioner to be in satisfaction of
an obligation to pay petitioner 20 percent of the profits from
Ham's liquor store and for no other purpose. See Blanton v.
Commissioner, 94 T.C. 491, 498 (1990). The same is true with
respect to the $15,000 finder's fee; i.e., it was not paid for
the partnership interest.
Petitioner and Jack Ham, with the assistance of Hood,
initiated detailed transactions with Commerce Bank to ensure that
the sham sale appeared bona fide despite the oil partnership's
lack of value. It is clear that petitioner's interest in the oil
partnership was worthless or nearly so. Both Jack and Bert Ham
believed that it had no value. In fact, after acquiring the
9 As discussed supra note 3, petitioner is collaterally
estopped from denying that in 1978 he received income of
$23,334.50 from liquor license sales in violation of the Hobbs
Act.
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