David and Ira Kaye Kessel - Page 5




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          price of the beans was continuing to increase, and that it was an           
          excellent long-term investment.  Petitioner believed that income            
          would come from the production of the jojoba beans and from                 
          research and development royalties.                                         
               Petitioner talked to his certified public accountant Fred              
          Schutz (Mr. Schutz) about the Utah I investment.  Petitioner did            
          not know whether he provided Mr. Schutz with a copy of the                  
          private placement memorandum.  Mr. Schutz reviewed the investment           
          and concluded there was nothing wrong with it from a tax                    
          standpoint.  Mr. Schutz prepared petitioners' 1982 tax return.              
               Petitioners decided to invest in Utah I.  In 1982, they paid           
          $10,000 and gave a promissory note to the partnership.  Based on            
          their $10,000 “investment”, petitioners deducted a $20,919 loss             
          on their Federal tax return in the same year.                               
               Over time, petitioners completely paid off their promissory            
          note to Utah I.  In 1989, when petitioners knew CFS was in                  
          bankruptcy, CFS sent out a letter asking for the partners to pay            
          their last payments.  Petitioners paid Utah I a total of $23,000.           
          Petitioners lost over $100,000 when Utah I and their other CFS              
          investments went under.                                                     
               On their joint 1982 Federal income tax return, petitioners             
          reported wages from petitioner's medical practice of $129,260 and           
          wages from Mrs. Kessel's job of $30,045.  They also deducted                







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