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In 1991, Mr. Kanz was indicted on money laundering charges
arising from a Drug Enforcement Agency investigation unrelated to
petitioners’ claims. On April 9, 1992, Mr. Kanz was sentenced to
serve a term of 42 months in a Federal penitentiary. In June
1993, he was released to a halfway house. In December 1994, Mr.
Kanz was released subject to electronic monitoring and secured
employment at Texas Switch, where he earned approximately $200
per week. From 1995 to 1998, Mr. Kanz worked for Landa
Automotive. Since 1998, Mr. Kanz has been employed by New
Braunfels Cycle Country, where he earns $2,400 per month. Mr.
Kanz’s wife operates a housekeeping business. They have no
dependent children. Mr. Kanz’s father died in the early 1990s,
and his mother died in January 2002.
Petitioners claimed embezzlement loss deductions of $90,069
on their 1993 return and $30,000 on their 1994 return for their
payments of the corporate employment taxes allegedly embezzled by
Mr. Kanz. These deductions are for amounts petitioners estimated
that they paid for the past due corporate employment taxes during
their bankruptcy. The following chart identifies the quarterly
periods and the amounts of tax, penalties, interest, and fees
that petitioners actually paid through their bankruptcy on the
past due corporate employment tax liabilities during the 1993 and
1994 tax years:
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