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A. Embezzlement Income
Respondent determined that petitioner had embezzlement
income of $74,000 and $110,000 for 1988 and 1989, respectively.
Gross income includes all income from whatever source derived.
Sec. 61(a). When a taxpayer acquires earnings lawfully or
unlawfully, without recognition of an obligation to repay and
without restriction as to their disposition, taxable income is
deemed to have been received, even though the taxpayer may be
required to repay the money at a later date. James v. United
States, 366 U.S. 213, 219-220 (1961); North Am. Oil Consol. v.
Burnet, 286 U.S. 417, 424 (1932); Mais v. Commissioner, 51 T.C.
494, 498-499 (1968). Therefore, embezzled funds constitute
taxable income to the embezzler in the year of embezzlement.
James v. United States, supra at 220.
Respondent has presented predicate evidence to establish
that petitioner had embezzlement income in 1988 and 1989. In
1988, petitioner persuaded Ms. Boals to transfer $312,436.05 into
his trust account. During 1988 and 1989, petitioner used,
without Ms. Boals' authorization, over $180,000 of these funds
for his personal benefit. He was subsequently convicted of
misappropriating fiduciary property, and his conviction was
upheld on appeal. Therefore, we conclude that respondent has
presented predicate evidence to establish that petitioner
received embezzlement income in 1988 and 1989. Accordingly,
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