- 12 - therefore, was taxable on his distributive share of the partnership’s profits for 1998, even though he did not receive it. See First Mechs. Bank v. Commissioner, 91 F.2d at 279. It is irrelevant that petitioner still may not know the full extent of the partnership income because of the deposits stolen by his partner, Mr. Cohen; the nonappearance of the deposits on the partnership books is not determinative. See Stoumen v. Commissioner, 208 F.2d 903, 908 (3d Cir. 1953) (holding that the taxpayer’s distributive share of partnership income was taxable to him in the year of realization by the partnership, despite the fact that his partner had embezzled funds which did not appear in the partnership books, and despite the fact that the taxpayer was unaware of the existence of the funds and never received any of them), affg. a Memorandum Opinion of this Court.5 Thirdly, a partner is taxable on his distributive share of partnership income when realized by the partnership despite a dispute among the partners as to their respective distributive shares. In De Cousser v. Commissioner, 16 T.C. 65 (1951), the taxpayer argued that a controversy with his partner rendered the amounts of his distributive share indefinite and impossible to determine and that those amounts were not specifically 5 We recognize that this is a harsh rule, but the harshness is mitigated somewhat by the theft loss deduction allowed under sec. 165(e), which, in pertinent part, provides: “any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.”Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011