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On October 27, 1993, after a criminal investigation by the
U.S. Attorney's Office and by respondent (and after seizure of
bank accounts, investment holdings, and other assets owned by
petitioner and his wife totaling $511,788), petitioner was
indicted and pleaded guilty to theft and to filing a false or
fraudulent Federal income tax return for 1990. Under the plea
agreement, petitioner agreed (for purposes of sentencing only and
without prejudice to claim a different amount in a civil lawsuit
with LDS Hospital) to an order of restitution in the amount of
$668,783 relating to the above embezzlement.
OPINION
Gross income under section 61(a) includes amounts received
from illegal activity such as embezzlement. See James v. United
States, 366 U.S. 213, 219 (1961); United States v. Lippincott,
579 F.2d 551, 552 (10th Cir. 1978); Romer v. Commissioner, T.C.
Memo. 1996-287.
Where taxpayers fail to keep accurate records, respondent
has considerable discretion in how the taxpayers' income is to be
calculated. See Erickson v. Commissioner, 937 F.2d 1548, 1553
(10th Cir. 1991), affg. T.C. Memo. 1989-552; Webb v.
Commissioner, 394 F.2d 366, 372 (5th Cir. 1968) (“when the
taxpayer has defaulted in his task of supplying adequate records,
he is not in a position to be hypercritical of the Commissioner's
labor”), affg. T.C. Memo. 1966-81; Factor v. Commissioner,
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