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the income CNC paid to its investors. CNC also accepted cash
payments from some of its investors. Some investors, not
including petitioner, received cash, rather than checks, on a
monthly basis. Petitioner only received checks from CNC. CNC
did not issue a Form 1099 to petitioner for any of the years at
issue.
Included with the monthly checks petitioner received from
CNC were “vouchers” indicating: (1) The amount of the
investment; (2) a “realization” amount; (3) a “margin” (gain)
amount; (4) petitioner’s “share” of the margin amount; and (5)
the amount “reinvested” (uniformly it was the amount of the
original investment). Petitioner did not reveal these vouchers
or their content to his return preparer.
CNC was, in reality, a so-called Ponzi scheme. Instead of
purchasing food products with the money CNC received from
investors, CNC used that money to pay out cash or checks on a
monthly basis to earlier investors. CNC closed in February 1995
when Cugliari fled to the Cayman Islands.
In November 1991, petitioner made his first investment in a
CNC contract. From that date to January 1995, petitioner
invested in another 10 CNC contracts. As of January 1995,
petitioner had invested a total of $250,657 in CNC contracts.
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