Nilodop, I applaud you for finding the Rossi case. Good work researching. But for some reason, your link only reports the Opinion section of the case, not the Facts. Try this link:
https://scholar.google.com/scholar_case?case=16639469168109645288&hl=en&as_sdt=6&as_vis=1&oi=scholarrYou state that the case supports gatortaxguy’s position that there was no sale. I disagree.
In the Rossi case, Houston (the agent) had been made the assignee of a partnership’s assets for the benefit of creditors, received a check from one of the partnership’s customers, he cashed the check and spent the money for his own personal use. The IRS argued that since Houston was the partnership’s agent, the amount of the check was included in the partnership’s income. The court sided with the taxpayer, concluding that Houston was not the agent of the partnership at the time he received the check.
In reaching the conclusion that Houston was not the partnership’s agent at the time he received the check, the facts showed that Houston was to sell the partnership’s assets, that he sold the assets and was finished with this work in 1936. The check was issued in 1937. The court said, “ It is a recognized principle of law that an agency terminates after the purpose for which it was created has been fulfilled.”
The court went on to say that in 1937 when Houston received the check, he was not an agent of the partnership, he had no right to cash it because there were no further creditors to pay, and that he should have immediately turned the check over to the partnership or its partners. The sale of the partnership’s assets had been completed in 1936.
In my opinion, this case supports my position that there was a sale but the taxpayer is not required to report the proceeds that were embezzled by the agent. Just like in Rossi, the taxpayer’s agent did what he was given power of attorney to do, which was to sell the property. Just like in Rossi, when that was done, the agency relationship terminated. Just like in Rossi, the agent had no right to cash the check for the proceeds from the sale, and therefore, the taxpayer is not taxed on the proceeds. But the taxpayer, as a result of the sale, is required to report relief of the mortgage loan (if any) because the sale did occur and relief of liability (if it existed) did occur.