- 12 - Thereafter, he operated the scheme through his wholly owned S corporation, the O'Bryon Co. As part of the scheme, Phillip sold nonexistent certificates of deposit (CD's) to various individuals. Phillip used the funds he received in the scheme to pay individuals who thought they owned CD's that had matured, to finance his other businesses, and to pay for his personal expenses. On March 30, 1995, Phillip was charged with grand theft under Ohio law. The prosecution alleged that Phillip had operated a fraudulent Ponzi scheme involving fictitious CD's. Phillip pleaded guilty to the charges. On April 28, 1995, the State court judge sentenced Phillip to 2 years in prison and ordered him to pay $468,834 in restitution to the individuals he had defrauded. In the notice of deficiency, respondent determined that petitioners failed to report embezzlement income of $423,850 for 1992, $289,578 for 1993, and $46,700 for 1994. In the petition, petitioners asserted that respondent erred in determining that Phillip received funds by illegal means in the amounts set forth in the notice of deficiency. Petitioners asserted that the money Phillip received in the Ponzi scheme was not includable in his gross income. Petitioners asserted in the alternative that, if the money did constitute gross income, then petitioners should be allowed a deduction under section 162 inPage: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
Last modified: May 25, 2011