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taxable year as the Ponzi distributions. In the exceptional
case, Parrish, the taxpayer was not a passive investor but was an
officer and director of the scheme's corporate vehicle and did
not introduce evidence to show either the amounts he invested or
received.
In two other cases, where as here, the taxpayer had not
recovered the initial investment during the same tax year as the
Ponzi distributions, courts have held that the distributions were
not income but return of investment funds. Taylor v. United
States, 81 AFTR 2d 98-1683, 98-1 USTC par. 50,354 (E.D. Tenn.
1998); Greenberg v. Commissioner, T.C. Memo. 1996-281.
Mr. Alfano advised petitioner that she would not have income
from CNC until she had recovered distributions in excess of her
investment and that due to its "unusual" nature, he did not think
she would recover her investment. Regardless of the accuracy of
the advice given by Mr. Alfano, however, the question is whether
petitioner believed the advice to be correct. See Cheek v.
United States, 498 U.S. 192 (1991); see also TWA. v. Thurston,
469 U.S. 111, 126-128 (1985); Amos v. Commissioner, 43 T.C. 50,
55 (1964), affd. 360 F.2d 358 (4th Cir. 1965).
Respondent's unstated argument must be that petitioner knew
that the CNC distributions represented income that the law
required her to report, and despite this knowledge she
intentionally, or recklessly failed to report it. Respondent did
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