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“embezzled company funds in the amounts determined, and it is the
law that embezzled funds are income to the embezzler in the year
in which they are misappropriated.” Id. at 934. We did not
explain whether our holding was based on the reasoning that all
the diverted funds were income to the taxpayer as embezzled
funds, or whether one-half was income to the taxpayer as his
distributive share and the other half was income as embezzled
funds.
In Estate of Etoll v. Commissioner, supra, three partners,
one of whom was the taxpayer, were engaged in a partnership. The
partnership was a successor to another partnership which had
operated under an agreement containing a provision that all
assets, including accounts receivable, would become the property
of the taxpayer upon the partnership’s dissolution. Id. at 676-
677. A new partnership agreement was prepared and contained a
different provision in respect of the distribution of the assets
upon dissolution. Id. at 677. However, that agreement was never
executed by one of the partners and never became effective. Id.
Subsequently, the partnership dissolved, and the taxpayer
collected partnership accounts receivable and used a portion to
pay personal expenses and deposited a portion into a bank account
from which only he was authorized to make withdrawals. Id. The
other partners initiated an action against the taxpayer seeking a
portion of the amount of the accounts receivable. Id. One of
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