Estate of Paul Campana - Page 13




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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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