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Additionally, in general, “a taxpayer need not treat as
income moneys which he did not receive under a claim of right,
which were not his to keep, and which he was required to transmit
to someone else as a mere conduit.” Diamond v. Commissioner, 56
T.C. 530, 541 (1971), affd. 492 F.2d 286 (7th Cir. 1974). Thus,
money a taxpayer receives in his or her capacity as a fiduciary
or agent does not constitute taxable income to that taxpayer,
Herman v. Commissioner, 84 T.C. 120, 134-136 (1985); Heminway v.
Commissioner, 44 T.C. 96, 101 (1965), and a shareholder who takes
personal control of corporate funds is not taxable on them so
long as it is shown that he held the funds as an agent of the
corporation and/or deployed them for a corporate purpose, AJF
Transp. Consultants, Inc. v. Commissioner, T.C. Memo. 1999-16,
affd. without published opinion 213 F.3d 625 (2d Cir. 2000); St.
Augustine Trawlers, Inc. v. Commissioner, T.C. Memo. 1992-148,
affd. sub nom. O’Neal v. Commissioner, 20 F.3d 1174 (11th Cir.
1994); Alisa v. Commissioner, T.C. Memo. 1976-255.
In the instant case, petitioner admits that he transferred
corporate funds totaling $986,856 into his personal accounts
during early 1988. Respondent contends that petitioner diverted
the $986,856 and hid it in brokerage accounts he controlled
because he intended to defraud Northwest of the moneys
petitioner’s corporations owed it. Respondent maintains that
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