Allen C. Chamberlin and Martha L. Chamberlin - Page 5

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          ownership of patents, and the amount of competition that                    
          Pharmacare faced in the marketplace.  In 1979 and 1980, Vavlitis            
          also persuaded petitioner to make substantial unsecured loans to            
          Pharmacare in order to keep the company running.  Vavlitis failed           
          to provide promissory notes for these loans despite repeated                
          requests by petitioner.                                                     
               On June 12, 1980, creditors of Pharmacare filed a chapter 7            
          involuntary bankruptcy petition against the company in the                  
          U.S. Bankruptcy Court for the Middle Division of Florida.  As an            
          unsecured creditor of Pharmacare, petitioner did not receive any            
          payment from the Pharmacare bankruptcy to reimburse his                     
          investment or his loans.  On their Form 1040, U.S. Individual               
          Income Tax Return for 1982, petitioners deducted a loss from                
          their Pharmacare investment and loans as a section 165 theft                
          loss.  Respondent audited the 1982 return and disallowed the                
               On March 9, 1981, petitioner organized The Chamberlin                  
          Corporation (The Chamberlin Corp.), a Delaware corporation                  
          licensed to do business in Florida, for the purpose of continuing           
          the Largo, Florida, operation.  Petitioner became an 80-percent             
          shareholder in The Chamberlin Corp., was elected chairman of the            
          board of directors, and was hired as the chief executive officer.           
          Petitioner did not receive a wage for the services he rendered in           

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