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of partnership income was taxable to him even though his partner
had stolen partnership funds, taxpayer had not received any
portion of the stolen funds, and taxpayer and his partner
disputed the amount of their respective distributive shares of
partnership income), on appeal (1st Cir., May 23, 2006); see also
Stoumen v. Commissioner, 208 F.2d 903 (3d Cir. 1953), affg. a
Memorandum Opinion of this Court; Gold v. Commissioner, T.C.
Memo. 1983-711. We therefore hold that petitioner must report
his distributive share of PTSI’s income.
Issue 3. Whether Petitioner Is Entitled to a Theft Loss
Deduction Under Section 165(e)
Petitioner argues that any income he earned from PTSI in
2002 was “offset” by moneys owed to him by the partnership.
Petitioner believes the preferred return provided for in the
agreement entitled him to receive at least $10,000 per year from
PTSI.3 Petitioner argues he was not paid those amounts because
the corporation embezzled or absconded with partnership funds.
We interpret petitioner’s argument as a claim for a theft loss
deduction under section 165(e).
3 This figure represents the 10-percent preferred return on
petitioner’s initial $100,000 contribution. In his pretrial
memorandum, however, petitioner asserts that his preferred return
has increased to $20,000 per year. Based on our resolution of
the third issue for decision infra, we need not decide whether
petitioner’s assertion is correct, and we do not address this
issue further.
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