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a theft loss for one-half of the farm income on the grounds that
Russell embezzled the income. However, the estate dropped its
embezzlement claim against Russell in exchange for $2 million and
approximately one-half of the remaining partnership property, and
the estate has not argued, nor does the record establish, that
Russell embezzled the proceeds from the grain sales. Thus, we
hold that Russell did not have a claim of right to the grain
sales proceeds, and the estate is not relieved of its obligation
to report one-half of the grain sales for 1994 proceeds in its
gross income for that year.23
23Even if we were to find that Russell acquired the grain
sale proceeds under a claim of right and without restriction as
to their disposition, it appears that the estate would still be
required to report the full amount of its 50-percent distributive
share in BBP. In Cipparone v. Commissioner, T.C. Memo. 1985-234,
we stated:
Partners are taxable on the full amount of their
distributive share even where a partner is unaware that
partnership income has been earned, and another partner
has embezzled it without his knowledge. Commissioner
v. Estate of Goldberger, 213 F.2d 78 (3d Cir. 1954),
affg. in part and revg. in part sub nom. Trounstine v.
Commissioner, 18 T.C. 1233 (1952); Stoumen v.
Commissioner, 208 F.2d 903 (3d Cir. 1953). This Court
has expressly followed Goldberger and Stoumen in Beck
Chemical Equipment Corp. v. Commissioner, 27 T.C. 840,
855-856 (1957).
We have already found that the grain sold in 1994 was partnership
property. Thus, because the estate’s distributive share was one-
half of all the partnership items, it would have to include one-
half of the grain sales proceeds in gross income. The estate has
not otherwise argued or presented evidence in this proceeding to
establish that it is entitled to deduct one-half of the grain
sales proceeds as a theft loss.
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