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Petitioner is a psychiatrist. He earned his medical degree
in 1955 from the University of Nebraska and then served a 1-year
internship with the United States Public Health Service in New
York, New York. In 1975, petitioner cofounded the Boulder
Psychiatric Institute in Boulder, Colorado. In 1985, he sold his
interest in the hospital and became affiliated with M&L Business
Machine Co., Inc. (M&L).
M&L, an S corporation incorporated in Colorado, was formed
in the 1970's to repair office equipment. During the 1980's
Robert Joseph, Daniel Hatch, and petitioner acquired all of M&L's
stock. Petitioner was M&L's vice president of human resources
and served, with Mr. Hatch and Mr. Joseph, on M&L's board of
directors.
During the years in issue, M&L operated a ponzi scheme that
promised to pay interest to investors at rates ranging between 24
and 520 percent. M&L representatives told investors that funds
invested in the company would be used to purchase equipment for
resale. M&L used these funds, however, to pay interest to other
investors. M&L did not file Federal income tax returns relating
to the years in issue.
Petitioner withdrew funds from his bank accounts and
accounts that he held jointly with his parents, William and
Berdine Kotlarz, and invested these funds in M&L. In addition to
an annual salary of $28,000 and monthly payments of $1,000 which
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