*150 Decisions will be entered under Rule 50.
T, a bank employee, embezzled bank funds by crediting her brother's account with deposits he never made. While T never intended to spend the embezzled funds for her own personal needs, she beneficially enjoyed this income and, in effect, treated it as her own when she placed it at her brother's disposal. Held, the embezzled funds are taxable income to T. Geiger's Estate v. Commissioner, 352 F. 2d 221, affirming a Memorandum Opinion of this Court, followed.
*115 The Commissioner determined deficiencies in and additions to the income tax of the petitioners in these consolidated proceedings as follows:
| 1 Addition to | |||
| Petitioner | Taxable | Deficiency | tax, sec. |
| Year | 6653(a), | ||
| I.R.C. 1954 | |||
| Barbara M. Bailey, docket No. 2299-67 | 1963 | $ 1,260.29 | $ 63.01 |
| 1962 | 17,271.50 | 863.58 | |
| C. P. Bailey and Barbara M. Bailey, | |||
| docket No. 2300-67 | 1964 | 200.14 |
*151 Due to concessions by the parties, the only issue that remains for decision is whether petitioner Barbara M. Bailey received taxable income in 1962 and 1963 in the form of funds she embezzled from her employer. The petitioners have conceded they are liable for the additions to their tax under section 6653(a) for negligence to the extent of any deficiencies that we may determine.
*116 FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation and the exhibits attached thereto are incorporated herein by this reference.
Petitioners Barbara M. Bailey and C. P. Bailey (hereinafter referred to as Barbara and C. P., respectively) are husband and wife. They filed their joint income tax return for 1962 and Barbara filed her individual income tax return for 1963 with the district director of internal revenue, Jacksonville, Fla. Barbara and C. P. resided in West Palm Beach, Fla., at the time they filed their petitions herein.
During 1962 and the early months of 1963, Barbara was employed in the returns department of the St. Lucie County Bank (hereinafter referred to as the bank), in Fort Pierce, Fla., in a capacity which gave her access to the records *152 of that bank. Ray Melton (hereinafter referred to as Melton), Barbara's brother, visited Barbara in her home on January 22, 1962. Melton, who had a checking account at the bank, told Barbara he needed money to cover several outstanding checks drawn on his account and to meet his current living expenses. Melton, who was married and had eight children, was unemployed. He had recently returned from Virginia where he had been a land salesman. He told Barbara that the land company in Virginia owed him commissions of between $ 7,000 and $ 10,000 which he expected to receive momentarily. Barbara explained to Melton that she would credit his account with a deposit of $ 3,000 even though he did not deposit such an amount. She did this the next day. Melton knew the circumstances surrounding this credit to his account and he consented to this arrangement. He advised Barbara the money would be repaid upon his receipt of the land commissions.
Soon thereafter, Melton contacted Barbara again. He told her there was a second mortgage on his house that was past due; that this mortgage was held by one of the men he had worked for in Virginia; and that the commissions due him would not be released*153 until the mortgage was satisfied. Following these discussions, on February 1, 1962, Barbara caused the making of a second fictitious deposit to Melton's account in the amount of $ 3,600, which moneys were used by Melton to satisfy the second mortgage.
Later, after he obtained a job in Cape Coral as a land salesman, Melton approached Barbara about a land deal. He told her they could make sufficient moneys from this deal to cover the deposits of embezzled funds to his account. By this time, Barbara knew the Virginia land commissions were not coming through and that something had to be done to replace the moneys taken from the bank. *117 Accordingly, she agreed with Melton to make further deposits to cover withdrawals on the so-called land deal.
During 1962 and 1963, Barbara caused the making of a number of fictitious deposits to Melton's account with the bank to cover checks drawn by him that would otherwise be dishonored for insufficient funds. During these periods, Melton would call Barbara, or tell her in person, about the larger checks that were coming through so that she could arrange to make funds available for honoring the checks. However, he would not advise her as*154 to the smaller checks he had drawn. Barbara believed that the amounts withdrawn by Melton in this manner were used in the land deal or to cover his personal living expenses.
In addition to these deposits to Melton's account, Barbara caused the making of similar deposits to the account of Thelma Melton, Melton's wife, to cover checks drawn by her that would otherwise be dishonored for insufficient funds.
Barbara also caused the making of fictitious deposits to the joint account she maintained with C. P. at the bank. These deposits covered expenditures Barbara had made in making good certain of Melton's checks which had been presented and which were not covered by sufficient funds. Barbara would sometimes cash her own paycheck or her husband's paycheck which had been given to her for deposit, and use the proceeds to make good Melton's checks. Subsequently, when she was able to do so, she would make fictitious deposits to the account maintained by her and C. P. to replace the paychecks that had not been deposited.
All of the fictitious deposits heretofore described were charged by Barbara, by means of false bookkeeping entries, to other accounts in the bank which she knew to be dormant. *155 The amount of the fictitious deposits made in each of the years 1962 and 1963, and the accounts to which they were erroneously credited were as follows:
| 1962 | 1963 | |
| Ray Melton, special acct | $ 33,740 | $ 5,650 |
| Thelma Melton | 2,025 | |
| C. P. and Barbara | 5,400 | |
| 41,165 | 5,650 |
At all times, Melton had knowledge of the source of the funds being used to cover the checks drawn by him. All of these funds were misappropriated from the bank by Barbara either directly for Melton's use, or to reimburse Barbara for the amounts of her own money which she had used to make good Melton's bad checks.
On January 22, 1963, the bank discovered the above-described activities and terminated Barbara's employment. Subsequently, Barbara *118 and Melton were separately convicted of conspiring to commit offenses to violate 18 U.S.C. secs. 656 and 1005.
The petitioners concede that the funds wrongfully misappropriated constitute taxable income; they do not concede that such income is properly taxable to Barbara. No part of the wrongfully misappropriated funds were included as income in C. P. and Barbara's joint Federal income tax return for the taxable year*156 1962 or in Barbara's individual income tax return for the taxable year 1963. The Commissioner determined that Barbara and C. P. received in 1962 taxable income of $ 41,165 which they failed to report in their joint return and that Barbara received $ 5,650 in 1963 which she failed to report in her individual return for that year.
OPINION
The petitioners concede the embezzled funds -- $ 41,165 in 1962 and $ 5,650 in 1963 -- constitute taxable income in those years, i.e., at the time the fictitious deposits were made. They contend, however, that these funds are properly chargeable as income to Melton, Barbara's brother, who spent these funds and not to Barbara who embezzled them. We disagree.
As we understand the facts, Melton approached Barbara and asked her either to loan or give him sufficient money to cover certain outstanding checks and to pay temporarily the living expenses of his large family at a time when he was down on his luck. Barbara, induced through considerations of blood relationship or sympathy, agreed to help him. For whatever reason, instead of advancing her own money, she decided to advance money she knew she could embezzle from her employer in the form of fictitious*157 deposits to Melton's account. Melton knew of the source of the money that was being made available to him and consented to this arrangement. He did not, however, participate in any way in the actual embezzlement of any of these funds. Barbara acted alone and of her own volition in that undertaking.
As the creator of the income, Barbara chose to place it at Melton's disposal. The character of all the transactions is typified in the instances where Barbara used the proceeds from her own paychecks to make good Melton's bad checks and then reimbursed herself by means of fictitious deposits to her own account. These transactions bear the trappings of a gift or personal loan on her part followed by embezzlement of funds which she converted to her own use. While the fictitious deposits to Melton's and Thelma's accounts differ in form from the above-described transaction, we think in substance they are identical, i.e., gifts by her of funds representing money she embezzled from the bank. We see no reason nor do the parties ask us to distinguish between *119 the above-described types of transactions. In all the transactions, Barbara exercised complete dominion and control over*158 the embezzled funds. She beneficially enjoyed this income and, in effect, treated it as her own when she chose to place it at her brother's disposal.
Barbara's exercise of control over these funds is sufficient for them to constitute income to her. Helvering v. Horst, 311 U.S. 112 (1940). In Geiger's Estate v. Commissioner, 352 F. 2d 221 (C.A. 8, 1965), affirming a Memorandum Opinion of this Court, involving similar facts, the taxpayer argued that the embezzled funds flowed directly from the bank to the depositor-beneficiaries of the fictitious deposits and did not pass through the embezzler's hands. The court replied, at pages 231-232:
That may be one way to describe it. Another, equally valid, is that the funds came to * * * [the embezzler] and were passed out or made available by her to the beneficiaries. These beneficiaries were the objects of * * * [the embezzler's] bounty, not the bank's. She was the force and the fulcrum which made those benefits possible. She assumed unto herself actual command over the funds. This is enough. Corliss v. Bowers, 281 U.S. 376">281 U.S. 376, 378, 50 S. Ct. 336">50 S.Ct. 336, 74 L.Ed 916 (1930).*159 We are not sympathetic with the claim that, because she may not have used the funds for personal needs, she is not to be taxed. She enjoyed benefits of a kind which obviously must have loomed large in her mind and have been important to her -- status as the beneficiary donor to good causes and favored acquaintances, a reputation as an available friend in need, the acquisition, with respect to a "loan", of the resulting obligation to her, and the like. Helvering v. Horst, supra, pp. 116-117 * * *
The petitioners seek to distinguish Geiger's Estate v. Commissioner, supra, on the ground that the beneficiaries of the fictitious deposits in that case, unlike Melton, were unaware of the nature of the deposits to their accounts. We do not find this difference material.
We hold that the embezzled funds are taxable to petitioners.
Decisions will be entered under Rule 50.
Footnotes
1. All statutory references are to the Internal Revenue Code of 1954 unless otherwise stated.↩