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ultimately wound up in the FIP account over which Mr. Gherman
exercised complete dominion and control. Respondent further
disputes whether moneys deposited into FIP accounts by Gherman
family members came from their own funds. Respondent maintains
that the record does not establish that all payments of personal
expenses were charged to Mr. Gherman's payroll account.
Respondent contends further that FIP was a sham and that Mr.
Gherman used it merely as a conduit to perpetrate his scam and to
defraud his investors. Respondent asserts that Mr. Gherman had
complete dominion and control over the transfer, investment, and
disbursement of the embezzled funds and derived readily
realizable economic value from those funds. Respondent contends
that Mr. Gherman's exercise of total dominion and control over
the phantom CD funds requires that the amounts be treated as
additional unreported income. Accordingly, respondent contends,
petitioners had unreported income from the CD scheme of at least
$9,832,500; i.e., the amount reflected on the CD schedule.
We agree with respondent that petitioners had unreported
income for the years in issue as a result of Mr. Gherman's
embezzlement of funds from FIP's clients. Petitioners' arguments
to the contrary appear based on a misunderstanding of the
applicable law and of the effect of admissions made during the
criminal proceeding and throughout the instant action.
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