Larry M. Levy and Diane Levy - Page 2

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          Internal Revenue Code for the years in issue, and all Rule                  
          references are to the Tax Court Rules of Practice and Procedure.            
          After concessions, the issues remaining for determination are               
          whether petitioners are:  (1) Entitled to deduct, in 1991,                  
          certain advances made to Jensen Talbert Fine Jewelers, Inc.                 
          (JTFJ); (2) entitled to deduct, in 1991, payments made pursuant             
          to personal guaranties of JTFJ debt; and (3) liable for the                 
          section 6662 accuracy-related penalty.                                      
                                  FINDINGS OF FACT                                    
               When the petition was filed, Larry and Diane Levy resided in           
          Newport Beach and Torrance, California, respectively.                       
          I.   Background                                                             
               JTFJ owned and operated the Jensen Talbert Fine Jewelry                
          Store (the store).  Robert Levy, Larry Levy’s father, was the               
          sole shareholder of JTFJ.                                                   
               Prior to 1985, Diane Levy worked as a salesperson in the               
          store.  In 1985, she began managing the store’s day-to-day                  
          operations (i.e., she supervised employees, acted as lead                   
          salesperson, and purchased inventory).  Diane Levy received wages           
          of $7,838, $10,125, $6,160, $11,480, and $13,720 in 1982 through            
          1986, respectively.                                                         
               Prior to 1985, Larry Levy began making advances to JTFJ.  By           
          May 2, 1985, Larry Levy had advanced $53,250 to JTFJ.  In 1985,             
          Larry Levy started working for JTFJ.  He worked for JTFJ an                 

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