- 32 -
Commissioner, 48 T.C. 929 (1967), affd. in part and revd. in part
on another issue 414 F.2d 621 (2d Cir. 1969), and Estate of Etoll
v. Commissioner, 79 T.C. 676 (1982), to support its argument that
Russell should have included all the farm income in his gross
income for 1994 and that none of the farm income is includable in
the gross income of the estate for 1994. Respondent argues that
regardless of whether the claim of right doctrine applies and
whether Russell received the grain sales income under the claim-
of-right doctrine, the estate is not relieved from reporting one-
half of the gain from the grain sales.21
In Estate of Kahr v. Commissioner, supra, the taxpayer, a
50-percent interest holder in a partnership, diverted large
amounts of partnership income from the partnership to himself.
Id. at 930. The taxpayer did not report the diverted funds in
the partnership returns of the company. Id. at 931. The
Commissioner determined that the taxpayer was liable for income
tax on one-half of the amount of the diverted funds as his
distributive share of partnership income and that he was taxable
on the other half of the amount of the diverted funds as
embezzlement income. Id. at 933. We held that the taxpayer
21Respondent has not asserted that Russell is required to
include the gain from the grain sales in 1994 under the claim of
right doctrine. Respondent’s contention that Russell is liable
for income tax on the entire amount of grain sales income is only
on the grounds that (1) the grain was the sole property of
Russell or (2) Russell received distributions in excess of his
basis in his partnership interest.
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