Terry Nathan Norman - Page 9

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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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