- 11 -
exceeded her investment, and she said: "No". Mr. Alfano advised
her that he did not think that the transaction was concluded. He
suggested that she try to get her money back but told petitioner
that he did not believe that she would. Months later, before
preparing the 1991 return, he asked whether she ever got her
money back and she said "no". Although "no" was a truthful
answer, she did not inform Mr. Alfano that she had not yet asked
for the return of her money.
The weight of authority holds that certain distributions to
taxpayers in "Ponzi"3 or pyramid schemes (where proceeds of later
investors are used to pay distributions to early investors,
lending an appearance of legitimacy to a fraudulent "investment")
are current income. Parrish v. Commissioner, T.C. Memo. 1997-
474, affd. 168 F.3d 1098 (8th Cir. 1999); Premji v. Commissioner,
T.C. Memo. 1996-304, affd. without published opinion 139 F.3d 912
(10th Cir. 1998); Wright v. Commissioner, T.C. Memo. 1989-557,
affd. without published opinion 931 F.2d 61 (9th Cir. 1991);
Murphy v. Commissioner, T.C. Memo. 1980-218, affd. per curiam 661
F.2d 299 (4th Cir. 1981); Harris v. United States, 431 F. Supp.
1173 (E.D. Va. 1977). In all but one of the above cases,
however, the taxpayer had recovered and was in either actual or
constructive receipt of his initial "investment" during the same
3See Bald Eagle Area School Dist. v. Keystone Fin. Inc., 189
F.3d 321, 323 n.1 (3d Cir. 1999).
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