August V. and Mary E. Klaue - Page 2




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               Unless otherwise indicated, all section references are to              
          the Internal Revenue Code in effect for the taxable years in                
          issue, and all Rule references are to the Tax Court Rules of                
          Practice and Procedure.  All dollar amounts are rounded to the              
          nearest dollar, unless otherwise indicated.  References to                  
          petitioner are to August V. Klaue.                                          
               The issues for decision are whether petitioners are entitled           
          to a nonbusiness bad debt deduction of $266,323 in 1993; and if             
          so, whether they are entitled to a capital loss carryover in the            
          amount of $184,138 in 1994.  We hold they are to the extent set             
          out below.1                                                                 
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          The stipulated facts and the accompanying exhibits are                      
          incorporated into our findings by this reference.  At the time              
          the petitions in these cases were filed, petitioners resided in             
          Spokane, Washington.                                                        
               Petitioner is a sophisticated businessman, and at the time             
          of trial he was chairman of the board of five corporations which            
          were engaged in banking, lumbering, and aviation.  In the mid-              
          1970's, petitioner befriended Roger Estes (Estes).  Estes is an             


               1Respondent determined that for the years at issue certain             
          computational adjustments should be made which would reduce                 
          petitioners' itemized deductions.  The parties can make these               
          adjustments in their Rule 155 computation.                                  




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