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refund application so that they could use the refunds to pay bank
obligations that were 90 to 180 days overdue. The Internal
Revenue Service made tentative refunds to petitioners in the
amounts shown on the Form 1045. The checks were endorsed by both
petitioners. Petitioner used the tax refunds to make payments on
his overdue loans.
After claiming the bad debt deduction for 1988, petitioner
continued to make advances to BEI and TELCOR. During calendar
years 1989 and 1990, he advanced $2,665,795.75 and $868,270.41,
respectively, to BEI, and during calendar years 1989 and 1990, he
advanced a total $438,117.62 to TELCOR. In 1990, petitioner made
a capital contribution of over $15 million to BEI that consisted
of ENSCO stock.
In the notice of deficiency, respondent disallowed the
business bad debt deduction for taxable year 1988. Disallowance
of the 1988 deduction eliminated the NOL in 1988 and resulted in
the disallowance of the carryback losses to petitioners' 1985 and
1986 taxable years, creating deficiencies for those years.
Petitioners' Federal income tax return for 1988 and the
refund application for 1985 and 1986 were prepared by Donald V.
Moore, Jr., a certified public accountant. Mr. Moore also
prepared the corporate tax returns for BEI. The 1988 return and
the refund application were signed by petitioners. Ms. Carvin
did not look at the 1988 return before signing it and was not
aware of the $5 million bad debt deduction claimed on the return.
Neither petitioner nor Mr. Moore explained the bad debt deduction
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