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The second area in which the two formulas differ pertains to
the reduction for those cashier's checks negotiated by petitioner
during the taxable years at issue.3 Respondent's proposed
reduction equals the entire amount of cashier's checks negotiated
during a particular taxable year, while petitioners' proposed
reduction equals one-half of that amount. Each proposal,
however, is at least arguably consistent with each proponent's
theory of the case. Petitioners maintain that the cashier's
checks negotiated during a particular taxable year should not be
treated any differently than the cashier's checks that were not
negotiated during that taxable year because all of the cashier's
checks constituted partnership property. In contrast,
respondent's proposed reduction does not recognize petitioners'
section 702 distributive share recognition obligation with
respect to any portion of the funds used to purchase the
cashier's checks. That is, respondent characterizes the funds
petitioner used to purchase the cashier's checks as giving rise
entirely to embezzlement income, none of which is recognized or
3With respect to both petitioners' and respondent's
computation of unreported income, this particular variable is
potentially oversimplified and misleading. Both parties include
it in their computation solely to account for cashier's checks
which petitioner negotiated during taxable year 1989. Neither
party contends that any cashier's checks were negotiated during
earlier taxable years. The record does not support a conclusion
that the cashier's checks negotiated in 1989 were actually
purchased in 1989. Yet, both parties presume this to be the
case. Accordingly, we too will presume that the checks
negotiated in 1989 were purchased in 1989.
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