Eric Wynn - Page 14

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          F.2d 216, 219-220 (6th. Cir. 1955), affg. in part, revg. and                
          remanding in part a Memorandum Opinion of this Court; Axelrod v.            
          Commissioner, T.C. Memo. 1982-92, affd. without published opinion           
          711 F.2d 1062 (9th Cir. 1983).                                              
               Most of the underpayment determined by respondent for 1983             
          arises from alleged embezzlement income.  Embezzled funds, once             
          reduced to a taxpayer's complete dominion and control, are income           
          to the taxpayer.  James v. United States, 366 U.S. 213 (1961).              
          However, as we have said:                                                   
                    The Supreme Court's decision in James v. United                   
               States, supra, firmly established the principle that                   
               embezzled funds are income to the embezzler.  That                     
               decision, however, does not stand for the proposition                  
               that all misappropriated funds are gross income of the                 
               person who illegally misapplied the funds.  The                        
               decision necessarily confines taxation of an embezzler                 
               to circumstances where the embezzler receives a                        
               sufficiently cognizable benefit under the normal                       
               principles of income taxation.                                         
               The Court referred to its oft-quoted language                          
               describing the breadth of Congress' intent regarding                   
               the statutory definition of gross income: all                          
               "'accessions to wealth, clearly realized, and over                     
               which the taxpayers have complete dominion and                         
               control'."  James v. United States, supra at 219                       
               (quoting Commissioner v. Glenshaw Glass Co., 348 U.S.                  
               426, 431 (1955)).  The Court refined this definition by                
               noting that such gain exists when the "recipient has                   
               such control over it that, as a practical matter, he                   
               derives readily realizable economic value from it."                    
               James v. United States, supra at 219 (quoting Rutkin v.                
               United States, 343 U.S. 130, 137 (1952)).  [Hobson v.                  
               Commissioner, T.C. Memo. 1992-312.]                                    
          Jewelry Purchased From F&M                                                  
               Respondent has not persuaded us by proffering clear and                
          convincing evidence that the Renaissance payment to F&M was not             




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