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earlier analysis of this transaction, we conclude that petitioner
exercised personal dominion and control over the ANB No. 2 funds
when he sought to employ them to secure his release from any
personal liability with respect to his corporations’ obligations
to Northwest. Thus, by mid-1988 petitioner had exercised
personal dominion and control over all of the corporate funds
that he had transferred to personal accounts in early 1988.
Although we conclude petitioner had exercised dominion and
control over the funds at issue by mid-1988, the question remains
whether the taxability of the funds to petitioner is affected by
the fact that some of the funds were returned to custodial
accounts or otherwise made subject to the TRO before yearend
1988. Funds over which a taxpayer has obtained dominion and
control, lawfully or unlawfully, are not taxable to him to the
extent they are repaid before yearend. Mais v. Commissioner, 51
T.C. 494 (1968); Leaf v. Commissioner, 33 T.C. 1093 (1960);
Stovall v. Commissioner, T.C. Memo. 1983-450; see also Hammer v.
Commissioner, T.C. Memo. 1989-396 (amounts returned by
shareholder to corporation in subsequent year not taxable where
shareholder derives no benefit); Rev. Rul. 65-254, 1965-2 C.B. 50
(deduction allowable under section 165 with respect to embezzled
funds in the year of repayment). In Leaf v. Commissioner, supra
at 1096, we held that a controlling shareholder who takes funds
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