Orneal and Martha Kooyers, et al. - Page 33

                                       - 33 -                                         
          made to conceal the fraudulent misappropriation of the taxpayers’           
          investment.                                                                 
               In Taylor, the taxpayers’ law partner was operating a Ponzi            
          scheme, providing cash to investors, including the partnership              
          and its clients, with other clients’ money, rather than providing           
          true returns on real investments.  The taxpayers, the other                 
          partners in the partnership, filed returns for the tax year in              
          which they had reported their shares of the partnership “phantom            
          profit” from the scheme.  Afterwards they filed amended returns             
          eliminating that income and claiming refunds of tax.  The                   
          taxpayers established that the partnership received less from the           
          scheme that year than it delivered to the partner in that year              
          and that the partner made no investments on behalf of the                   
          partnership.  The court held that, for those reasons, the                   
          taxpayers were entitled to the refunds.                                     
               We conclude that the “interest” label given to the payments            
          petitioners received in 1998 through their investments with                 
          Little and Rowe was patently erroneous.  These payments were not            
          for the use and forbearance of their money but, rather, were made           
          to conceal the fraudulent misappropriation by Little and Rowe of            
          the money petitioners entrusted to them.12  Accordingly, the                

               12We note that this Court has held that losses from                    
          investments that turn out to be Ponzi schemes give rise to a                
          theft loss deduction in the taxable year in which the taxpayer              
          discovers the loss.  Sec. 165(c)(3), (e); Jensen v. Commissioner,           
                                                             (continued...)           





Page:  Previous  23  24  25  26  27  28  29  30  31  32  33  34  35  36  37  38  39  40  41  42  Next

Last modified: May 25, 2011