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interest expense. Finally, the testimony of Tammy M., one of the
women who provided escort services to customers pursuant to
petitioner’s arrangements, fails to establish that petitioner
paid interest with respect to any loan from Ms. M. Ms. M. lent
petitioner $6,000, and respondent concedes that petitioner wrote
checks in repayment totaling at least $6,070. Ms. M. testified,
however, that many of petitioner’s repayment checks were
dishonored. She also testified that, while she may have
recovered the amount of her loan to petitioner, she received no
more than that. We thus cannot find that petitioner has
established her entitlement to a deduction for interest from her
dealings with Ms. M.22
VI. Whether Petitioner Has Unreported Income in 1991 and 1992
For the last 2 years in issue, 1991 and 1992, respondent
determined that petitioner had unreported income by
reconstructing her income using cost-of-living survey information
published by the Bureau of Labor Statistics (BLS). Respondent
employed this data to determine that petitioner had a cost of
22 In addition to claiming deductions for interest,
petitioner also claims deductions for the repayment of principal
in various instances. There is no legal basis for her to deduct
repayments of principal per se. Our findings of unreported
income to petitioner from embezzlement, however, have excluded
amounts she repaid. Petitioner has thus received the benefit of
her repayments for tax purposes where appropriate. See Collins
v. Commissioner, 3 F.3d 625 (2d Cir. 1993), affg. T.C. Memo.
1992-478.
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