Michael W. Rehtorik, et al. - Page 14

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          Commissioner, 91 T.C. 874, 909 (1988); Stone v. Commissioner, 56            
          T.C. 213, 220 (1971).                                                       
               Funds received by a taxpayer through misappropriation or               
          embezzlement constitute taxable income to the taxpayer.  James v.           
          United States, 366 U.S. 213, 219 (1961).                                    
               Funds received as loans, however, are not properly treated             
          as taxable income.  James v. United States, supra at 219.  If               
          there exists between a taxpayer who receives funds and the                  
          provider of funds a good-faith expectation that the funds are to            
          be repaid and an obligation to do so, the funds in the hands of             
          the taxpayer will be treated as nontaxable loan proceeds.  See              
          Collins v. Commissioner, 3 F.3d 625, 631 (2d Cir. 1993), affg.              
          T.C. Memo. 1992-478.  Funds received by a taxpayer as an agent or           
          conduit of a corporation are not treated as taxable income.  See            
          Lashells’ Estate v. Commissioner, 208 F.2d 430, 435 (6th Cir.               
          1953), affg. in part, revg. in part and remanding a Memorandum              
          Opinion of this Court; Ishijima v. Commissioner, T.C. Memo. 1994-           
          353.                                                                        
               With regard to fraudulent intent, respondent must prove that           
          petitioner intended to evade taxes by conduct intended to                   
          conceal, mislead, or otherwise prevent the collection of taxes.             
          Clayton v. Commissioner, supra at 647; Parks v. Commissioner, 94            
          T.C. 654, 661 (1990); Hebrank v. Commissioner, 81 T.C. 640, 642             
          (1983).  Fraud may be proven by circumstantial evidence because             
          direct evidence of fraud is generally not available.  Clayton v.            




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