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On each day that Paine Webber was open for business, petitioner
visited its office and invested approximately $500,000 to $1
million in speculative securities. From the time that petitioner
arrived at Paine Webber’s office, usually 6 to 6:30 a.m., he
started drinking alcoholic beverages, supplied by Paine Webber,
until he was high and happy but not stumbling drunk. He
authorized each of his trades, and he was informed and
knowledgeable as to all of his trades. Some of the trades
resulted in gains, and some of them resulted in losses.
During 1980, petitioner had exhausted most of his funds, and
he ceased his regular involvement with Paine Webber. In or about
1985, petitioner and his wife sued Paine Webber, Osborne, and
others (collectively, the defendants) in a U.S. District Court,
alleging that the defendants were liable for securities fraud,
negligence, and breach of fiduciary duty in the handling of
petitioner’s accounts. The court dismissed the lawsuit as time
barred by the applicable period of limitations and for failure to
plead properly as to fraud. That dismissal was affirmed by the
Court of Appeals for the Ninth Circuit.
On his 1986 Federal income tax return, petitioner claimed an
$800,000 deduction for a casualty or theft loss. On his 1997,
1998, and 1999 Federal income tax returns, petitioner claimed
that he was entitled to deduct with respect to that loss NOL
carryovers of $726,572, $726,572, and $703,308, respectively.
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