Leonard Ray Blanton and Betty Blanton - Page 18

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                  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                              

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