Anthony and Linda Walters - Page 19

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          taken into account pursuant to section 702.  Although this is               
          arguably consistent with respondent's embezzlement theory, we               
          have resolved the embezzlement issue in petitioners' favor and              
          need consider it no further.                                                
               The effect of petitioners' argument should be appreciated.             
          The necessary consequence of arguing for a smaller reduction is             
          that unreported income will be higher.  Such an argument,                   
          however, is necessary if consistency is to be maintained with               
          their theory that the cashier's checks belonged equally to                  
          Carlton and petitioner.  In any event, as a result of having                
          resolved the embezzlement issue in petitioners' favor, we find              
          that only one-half of the negotiated cashier's checks should be             
          considered in the computation of petitioners' unreported income             
          for each taxable year at issue.                                             
               The final area in which respondent's formula for calculating           
          petitioners' unreported income differs from the formula advanced            
          by petitioners involves the amount of the reduction necessary to            
          account for partnership income reported on petitioners' returns.            
          Petitioners maintain that this reduction should equal the entire            
          amount of income identified on their Schedules E as having been             
          received from Fruitland.  In contrast, respondent contends that             
          the amount of this reduction should be limited to the amount                
          petitioners listed on their returns as income received in the               
          form of guaranteed payments.  Respondent maintains that limiting            
          the amount of this reduction to the amount petitioners list on              




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