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Stephen Swain and Steven Conway were shareholders in a small
investment bank named S.J. Conway & Company (SJC). During 1987
and 1988, events occurred that made Mr. Swain want to “get out
of” SJC. In February 1988, Mr. Swain and Mr. Conway reached an
agreement for Mr. Conway to buy out Mr. Swain’s shares of SJC
(agreement). Mr. Conway agreed to make a staged payout to Mr.
Swain.
Mr. Conway violated the agreement by failing to make
payments. This caused an acceleration of the payout. Mr. Swain
“pressed” Mr. Conway for the money he was owed. On September 9,
1988, Mr. Conway paid Mr. Swain in full. Mr. Swain did not see
any documentation regarding where the money Mr. Conway paid him
came from.
OPINION
Deductions are a matter of legislative grace, and petitioner
has the burden of showing that he is entitled to any deductions.2
Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934).
Alleged Investments
Petitioner claims:
(1) He was approached by Mr. Conway to make an
investment in SJC; in September 1988 he invested
2 The record does not establish when the audit in this case
began, and petitioner does not argue that sec. 7491 applies to
this case.
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