- 10 - income for those years totaling $189,098, based upon his accountant's estimate of Lakeview's cash sales during the period. Petitioner contends that although he repaid to Lakeview his share of the diverted cash, William did not, and thus remained obligated to the corporation for the diverted amounts. The $134,116 "forgiveness of debt" deduction claimed by Lakeview in 1992 represents the sum of what petitioner contends is William's share of the skimmed cash, plus the price of an automobile purchased for William with corporate funds, along with the $9,000 check issued to Lakeview for a traded-in car that William converted to personal use.5 a. Theft Loss Notwithstanding Lakeview's return position that it was entitled to a $134,116 deduction for the "forgiveness of debt", petitioner on brief first argues that Lakeview is entitled to deduct this amount as a theft loss under section 165. Petitioner contends that William's actions amounted to embezzlement under Michigan law, and Lakeview is therefore entitled to a deduction because section 1.165-8(d), Income Tax Regs., identifies a "theft" as including embezzlement. However, even if we accept petitioner's contentions regarding the cash diversions, it is well established that a diversion of corporate funds by 5 We note that the sum of (i) one-half of the additional income of $189,098 reported on Lakeview's amended returns for 1984 through 1990 (i.e., $94,549), plus (ii) the $31,878 purchase price for the automobile provided William, plus (iii) the $9,000 converted check, equals $135,427, not $134,116. Petitioner offers no explanation for this discrepancy.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011