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"groundless" and "frivolous" because other defendants have been
criminally convicted for doing what petitioner Edward Kelly did.
In United States v. Wood, 943 F.2d 1048 (9th Cir. 1991), the
first case relied on by petitioner, the taxpayer was charged with
tax evasion arising from unreported income derived from his
embezzlement of funds placed with him for investment. One of the
taxpayer's defenses was that he had no tax liability because he
had lost the funds in the commodities market and that the losses
were fully deductible from the embezzlement income. The
Government argued that the losses were capital and not fully
deductible because, as in the case at hand, the defendant had no
customers and traded exclusively for his own account. The
defendant was convicted of evasion because he embezzled and did
not report the income, not because he claimed ordinary loss
treatment as one of his defenses.
In the second case relied on by petitioner, United States v.
Diamond, 788 F.2d 1025 (4th Cir. 1986), the defendant, who had
claimed ordinary loss treatment of his commodities losses, was
convicted of signing false returns because the evidence
established, among other things, his education and professional
experience (C.P.A., J.D., M.B.A., LL.M.), suggesting an
extraordinary sophistication with respect to tax matters; that he
reported trading losses in prior and subsequent years as capital
losses and caused his father to report his losses from similar
activity in 1980; that he directed his employer to withhold
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