United States Tax Court

“ Money would often go out of and come back into the same account on the same day. There was a box on the authorization form entitled 'Circulating.' When funds were to stay within the Margolis 'system' this box would be checked. The Margolis 'system' consisted of entities both foreign and domestic which were in some way connected with Mr. Harry Margolis' office, either as clients or entities whose books were kept in his office and for which he could issue authorization forms to the bank for transfer of funds.
In late 1973, Mr. Margolis met Gerald Schulman. ”

“ On October 14, 1974, Gerald Schulman opened an escrow on a post office property located in Salt Lake City, Utah. Escrow instructions were amended on December 18, 1974, and again on December 26, 1974. Under the terms of the escrow, the total purchase price of the property was to be $393,000, consisting of a downpayment of $68,000 and an assumable all-inclusive deed of trust with an unpaid balance in the approximate amount of $323,000 as of October 1974. The all- inclusive deed of trust bore interest at a rate of 7.77 percent per annum and required annual payments in the amount of $31,605. ”

“ However, again the Court emphasizes that when taxpayers deal with foreign entities, attempting to make documentation of their transactions unavailable to respondent, the argument that respondent has failed to produce documents conclusive as to certain facts as distinguished from evidence giving a clear inference that those facts are true, does not, as petitioners contend, warrant a holding for petitioners. ”

“ These documents state that from December 1974 through December 31, 1979, payments were to be applied to interest computed at the rate of 6.08 percent and payments from January 1, 1980 through December 31, 1995 were to be applied to interest to be computed at an annual rate of 5 percent with the remaining amount being applied to principal. From January 1, 1996, payments were to be applied to principal only until the balance of the loan was paid off. Annual payments were to be $31,605 from December 9, 1974, until the loan was repaid. ”

“ Each of the agreements with the partnerships other than Talmud provided for making available loans of a specified sum of money by WE for the partnership at an interest rate of 5 percent. Gerald Schulman is listed as a general partner in each of the Koran, Isis and Zen partnerships. Erich Meyer, Donald F. Cox, EST, ADC and P. Michael Hunt are listed as partners of Koran. P. Michael Hunt is listed as a partner of Isis. ”

“ Meyer, Cox, Hunt, Erhard and Schulman were clients of Mr. Harry Margolis, and EST was a client of Mr. Margolis. Mr. Harry Margolis is the sole owner of ADC. The statements in this document are to the effect that Talmud Properties Partnership (Talmud) is organized as a general partnership consisting of the individuals and entities whose signatures appear on the instrument. ”

“ Schulman assigned his interest in the escrow on the Henry, Illinois, post office property to Talmud. A document dated December 6, 1974, entitled 'Assignment' from Talmud to CRC states that Talmud assigns its interest in the escrow on the Henry, Illinois, post office property to CRC.
An agreement of limited partnership of Henry Limited (Post Office Partnership No. 5) dated December 20, 1974, states that the total capital contribution of the partners to the Post Office Partnership No. 5 is $50,000. A sales agreement dated December 1974 from CRC to Post Office Partnership No. ”

“ From To Amount Bank Charge ABL Talmud $ 100,000 --0-- Talmud ABL 100,000 --0-- ABL Talmud 1,000,000 --0-- Talmud WE 1,000,000 $25 On December 6, 1974, the following amounts were transferred to ABL's account at Barclays Bank California from Barclays Bank Tortola:
From To Amount Barclays Bank Tortola .. ABL $ 901,000 Wickams Cay Trust Co.... ABL 1,050,000 Wickhams Cay Trust Co. is a trust company registered in the British Virgin Islands. It was formed in 1974 and Noel Barton is registered as its director. Wickhams Cay Trust Co. has a minimal net worth in its own right. ”

“ Addition to Tax Deficiency I.R.C. 1954 Petitioners Year in Income Tax Section 6653 (a) Erich Meyer and Ilse M. Meyer .. 1974 $457,420 $22,871 Donald F. Cox .................. 1974 66,305 3,315 The issue for decision is whether petitioners are entitled to deduct on their 1974 income tax returns amounts claimed as distributive losses from Talmud Properties Partnership, which distributive losses resulted entirely from an interest deduction claimed on the partnership's 1974 return of income. ”