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and used to make investments. Petitioners also assert that
Gherman family members made deposits to FIP for which no credit
was made in the computation of unreported income and that no
consideration was given in the computation of unreported income
for stock losses. Petitioners assert that they and their
children borrowed money from FIP, that they made payments of
interest and principal on those loans, and that the loans and
payments are reflected in FIP's books and records. Petitioners
also contend that personal expenses of Mr. Gherman that FIP paid
were charged to his payroll account and reported as Form W-2
income on petitioners' joint Federal income tax returns.
Respondent contends that Mr. Gherman embezzled $14.2 million
from FIP's clients, consisting of the $9.8 million from the CD
scheme, converted over the years 1982 through 1988, and the $4.4
million exit money with which he fled the country in August 1988.
Respondent contends that there is no evidence that any valid
loans existed and, furthermore, there were no consensual
agreements with the investors that their funds could be used by
petitioners as "loans". Respondent asserts further that the
source of any funds purportedly "loaned" was money stolen from
FIP's clients. Respondent additionally disputes petitioners'
contention that the Gherman family members received only $100,000
from the embezzlement. Respondent contends rather that, albeit
sometimes through a circuitous route, all of the embezzled funds
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