- 48 -
arose from embezzlement of funds from accounts of FIP's clients.
As we discussed supra, the embezzlement occurred when Mr. Gherman
converted funds from various accounts of FIP's clients, not when
those funds subsequently were deposited into or disbursed from
the FIP account. Ms. Walters had no control over the accounts of
FIP's clients. She was not a participant in the embezzlement of
funds from those accounts.
Moreover, if control over the FIP account was determinative,
we are convinced that Ms. Walters did not exercise that control.
Ms. Walters signed blank checks in large numbers. Mr. Gherman's
signature, however, also was required on all of the checks before
they became valid. Ms. Walters made no decisions as to when or
where the funds would be used. Mr. Gherman alone made the
decisions relating to the disbursement of funds from the FIP
account. Additionally, Mr. Gherman alone embezzled the funds and
he alone knew that money from accounts of FIP's clients was being
diverted into the FIP account. Mr. Gherman alone made all
financial decisions relating to the use of those diverted funds.
Accordingly, we hold that the unreported income is attributed
solely to Mr. Gherman. See Feldman v. Commissioner, 20 F.3d
1128, 1136-1137 (11th Cir. 1994) (the test for whether an item is
attributable to a spouse is whether the spouse has sufficient
connection through ownership rights or otherwise to make it an
item for which both spouses should bear responsibility), affg.
T.C. Memo. 1993-17.
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