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Through a colleague, petitioner learned about Daniel Schwab
(Schwab), an insurance agent who was offering $1,250,000 of life
insurance for a "minimum premium". After advising the colleague
of his interest, petitioner received a telephone call from
Schwab. Schwab confirmed that he was offering $1,250,000 of life
insurance for a "minimum premium" and that petitioner would need
a physical exam, paid for by Schwab, and after 1 year, petitioner
could either extend or cancel the policy. At the time of the
conversation with Schwab, petitioner already owned a whole life
insurance policy with coverage in the range of $100,000 to
$150,000. At the same time, petitioner believed that his need
for life insurance coverage was in the $300,000 to $500,000
range.
Thereafter, petitioner met with Schwab, who promoted a
$1,250,000 policy with Royal Maccabees Life Insurance Co.
(Royal), and petitioner agreed to apply for a policy. Schwab
then accompanied petitioner to a medical center where a physical
exam was administered to petitioner. Petitioner, during 1991,
remitted separate checks in the amounts of $3,500 and $40,653
made payable to Stable Reserve, Inc. (Stable Reserve), and Royal,
respectively. Stable Reserve was Schwab's straw entity used as a
conduit for the insurance scheme. At the same time, Schwab
remitted a $40,653 check to petitioner. In 1992, Schwab remitted
a $3,500 check to petitioner. Schwab's $40,653 check to
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