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for the Southern District of Florida. The matter was
transferred to the U.S. Bankruptcy Court for the District of
Oregon on September 17, 2001. On March 12, 2002, petitioners
each filed a proof of claim with the bankruptcy court for a total
of $39,492.3 Petitioner did not receive any money from Alpha
Telcom or ATC or the pay phones they purchased.
C. Claimed Deductions and Credits
On April 12, 2002, petitioners jointly filed a Form 1040,
U.S. Individual Income Tax Return, for 2001, to which they
attached a Schedule C, Profit or Loss From Business, claiming a
depreciation deduction of $2,143 with respect to the seven pay
phones. Petitioners also attached to the 2001 return a Form
8826, Disabled Access Credit, claiming a $5,000 tax credit with
respect to the seven pay phones.
On April 12, 2003, petitioners filed a joint Form 1040 for
2002, to which they attached a Schedule C claiming an expense
deduction of $14,000 on line 27 as an “Other” expense. In the
3 The bankruptcy matter was dismissed on Sept. 10, 2003, by
motion of Alpha Telcom. The bankruptcy court held that it was in
the best interest of creditors and the estate to dismiss the
bankruptcy matter so that proceedings could continue in Federal
District Court, where there was a pending receivership involving
debtors.
The Securities and Exchange Commission (SEC) brought a civil
suit against Alpha Telcom in 2001 in the U.S. District Court for
the District of Oregon. On Feb. 7, 2002, the District Court held
that the pay phone scheme was actually a security investment, and
Alpha Telcom had violated Federal law because it did not register
the program with the SEC. SEC v. Alpha Telcom, Inc., 187 F.
Supp. 2d 1250 (D. Or. 2002), affd. 350 F.3d 1084 (9th Cir. 2003).
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