Estate of Melvin W. Ballantyne, Deceased, Jean S. Ballantyne, Independent Executrix, and Jean S. Ballantyne - Page 32




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          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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