- 41 -
with a transaction date after Mr. Gherman fled the country. We
are not persuaded that either Mr. Gherman or Ms. Walters
exercised any dominion or control over those funds. We further
reduce the net amounts reflected on the CD schedule by the
purported interest paid to CD participants. Those payments also
appear to be an integral part of the CD scheme and helped to
perpetuate the fraud and are accordingly treated as an expense of
the illegal activity.
Additionally, we reduce the net amounts reflected on the CD
schedule by amounts that we believe petitioners already included
in income in the form of Form W-2 wages from FIP. FIP paid wages
to Mr. Gherman for all of the years in issue and to Ms. Walters
for year ended 1984, which petitioners reported on their tax
returns. A portion of the wages paid to petitioners by FIP would
have been paid from gross receipts. For each of the years in
issue, however, FIP operated at a loss. Mr. Gherman used a
portion of the embezzled moneys to fund FIP's operations,
including petitioners' salaries. Consequently, for each year we
reduce the net amount embezzled by the lesser of the Form W-2
wages reported on the return or FIP's reported net operating
loss. Accordingly, we hold that the unreported income (rounded)
for the years in issue is as follows:
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