- 39 - into the FIP account. The proper focus, however, must be on Mr. Gherman's unauthorized diversions of funds from the accounts of FIP's clients into the FIP account. Those unauthorized diversions constitute the taxable events, and not Mr. Gherman's subsequent use of the embezzled funds, whatever that use might have been. See Bailey v. Commissioner, supra; Estate of Geiger v. Commissioner, supra. Mr. Gherman admitted during the criminal proceeding that he had embezzled approximately $9.7 million from FIP's clients. It is well settled that a judgment of conviction in a criminal prosecution is admissible in evidence in a subsequent civil action which is based on the act for which the conviction was rendered. Fed. R. Evid. 803(22). Mr. Gherman's guilty plea in the criminal proceeding, furthermore, is a confession of truth to the charges and is admissible in the instant action as his admission that he in fact embezzled funds from FIP's clients. Fed. R. Evid. 801(d)(2). Additionally, petitioners do not challenge the accuracy of the amounts listed in the CD schedule, prepared from FIP's books and records, nor do they deny that Mr. Gherman exercised total control over the embezzled funds. Petitioners, furthermore, do not challenge respondent's allegation that Mr. Gherman embezzled the $9,832,500 reflected on the CD schedule. Rather, petitioners contend that Mr. Gherman did not receive any unreported incomePage: Previous 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Next
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