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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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