Phillip A. O'Bryon and Cyndie W. O'Bryon - Page 11

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          that approach here and separately discuss whether respondent's              
          position on each issue was substantially justified.                         
               From the time the notice of deficiency was issued to the               
          March 20, 2000, settlement, the parties disagreed as to the                 
          following substantive matters:  (1) Whether amounts that Phillip            
          received by illegal means and failed to report on the returns for           
          tax years 1992 through 1994 should be reduced by the amounts that           
          he claimed to have repaid to his victims; (2) whether Phillip was           
          subject to section 6663 civil fraud penalties for the unreported            
          income for tax years 1992 through 1994; (3) whether Cyndie                  
          qualified for relief under section 6015 on deficiencies,                    
          additions to tax, and penalties resulting from Phillip's                    
          embezzlement income; (4) whether petitioners were entitled to               
          claim deductions for Schedule E losses for tax years 1992 through           
          1994 in connection with Phillip's S corporation used in his                 
          illegal activities; (5) whether Phillip was entitled to claim a             
          deduction for section 1231 loss for tax year 1991 with respect to           
          his interest in an unsuccessful partnership, and to carry over              
          that loss to subsequent tax years as net operating losses; and              
          (6) whether petitioners were entitled to claim certain Schedule C           
          deductions for tax years 1991 and 1992.                                     
          Omitted Income From Phillip's Fraudulent Ponzi Scheme                       
               From 1990 to 1991 or 1992, Phillip operated a Ponzi scheme             
          through joint business ventures with another individual.                    

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