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reported $1,093,778 of capital gains on their 1993 Federal income
tax return.
When petitioner purchased the note, he did not consult with
any advisers or perform any independent research regarding Super
City Meats. Furthermore, when petitioner purchased the note, he
had no knowledge of the murder of Stephen's business partner or
the alleged problems with the Chinese mafia. Jeffrey continued
to manage the note, and Stephen was not informed that petitioner
had purchased it.
In February 1992, Stephen was indicted for the July 1990
murder of his business partner. The indictment against Stephen
was not dismissed until August of 1993. As a consequence of
defending himself against the criminal indictment, Stephen
"didn't have a dime." In 1993, Stephen was unemployed, he and
his wife were provided living expenses by his mother-in-law, and
he carried in excess of $100,000 of credit card debt.
The insurance companies refused to pay on the policies of
Stephen's murdered business partner. The insurance proceeds were
never paid to Super City Meats or any of its representatives.
On September 30, 1993, Stephen acknowledged in a letter to
Jeffrey that he did not have the current ability to repay the
advance and the required interest. On October 11, 1993, Stephen
further acknowledged in a letter to Jeffrey that it was unlikely
he would ever have the resources to repay the debt.
On their 1993 Federal income tax return, petitioners claimed
a nonbusiness bad debt deduction of $100,000. The burden of
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