Estate of Melvin W. Ballantyne, Deceased, Jean S. Ballantyne, Independent Executrix, and Jean S. Ballantyne - Page 33




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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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