arrangements in their family and continued to do so after the death of Miriam's father. Miriam had no dealings with financial matters either before or after she became 21.

Miriam knew of the existence of the joint account but not of its size. Prior to Kathryn's death, Miriam never had possession of the joint account passbook. Kathryn told Miriam that the joint account was a reserve fund, available to Miriam if needed. Miriam never inquired from her mother or the attorneys for the estate as to any of the details of the account.

Kathryn remained in Los Angeles until 1955 or 1956. Thereafter until Kathryn's death petitioners and Kathryn all resided in Pebble Beach, California, although in separate homes. Miriam's relationship with her mother, whom she saw several times a week during this period, was at all times cordial and friendly.

Kathryn "lived well" throughout the period from 1949 until her death in October 1958. During this time Kathryn did not give Miriam gifts of cash or items of property. However, Miriam occasionally inquired as to her mother's need for funds and sometimes made cash gifts to her mother. Petitioners' gifts to Kathryn during 1958 and payments of her medical and funeral expenses totaled at least $2,624.03.

While Kathryn resided in Pebble Beach, California, she lived in a house owned and maintained by her son, Miriam's brother. Miriam was aware that a substantial portion of Kathryn's support was being furnished by that brother.

Several weeks before Kathryn passed away, she told Miriam she had taken money from the joint account and requested Miriam's forgiveness. Kathryn also said she had left a letter for Miriam. Miriam had never before known of Kathryn's withdrawals from the joint

account.

After Kathryn died, there came into Miriam's possession the passbook for the joint account and also a sealed letter, addressed to Miriam, dated May 1, 1951, and reading as follows:

Mimi Darling

From time to time it has been necessary to borrow from the savings accountso in payment am leaving you the Sears Roebuck Stock which is more than ample for the loan.

I appreciate the loan Darling. All else you will find in perfect shape.
All the love in the World.

Mommie

On August 10, 1950, $1,493.43 was deposited in the joint account. The first withdrawal, in the amount of $3,402, was made on September 21, 1950. The subsequent withdrawals, all made after the date of the letter set forth hereinabove, occurred on and after December 12, 1955. The last withdrawal prior to the closing of the account was made on

March 21, 1958. All withdrawals except the one closing the account were made by Kathryn. Kathryn's withdrawals from the joint account totaled $7,897. Miriam never deposited money in the joint

account.

Kathryn left assets of $217.04, and debts in excess of that amount. The assets were distributed to Miriam's brother, who paid the debts. Miriam did not intend to grant Kathryn an ownership interest in the $6,840.68 transferred from the guardianship account to the joint account and Kathryn did not believe such an interest had been granted to her. The sums Kathryn withdrew from the joint account were not given to Miriam nor were they used for Miriam's purposes.

OPINION.

Issue 1.

Petitioners maintain they suffered a loss due to embezzlement discovered in the taxable year before us. Although petitioners point to no statutory provision allowing deduction for such losses, respondent assumes, and we do also, that petitioners' claim is based upon the relevant provisions of section 1651 of the Internal Revenue Code.2 Respondent contends there has been no embezzlement.

We agree with petitioner.

It is clear that the term "theft," as used in section 165, includes embezzlement. Sec. 1.165-8 (d), Income Tax Regs.; Cal. Pen. Code sec. 490a. The issue of whether a loss arose from theft is to be determined under the applicable State law. Michele Monteleone, 34 T.C. 688, 692 (1960), and cases there cited. The deduction does not depend upon whether the thief or embezzler is convicted or even prosecuted. Paul C. F. Vietzke, 37 T.C. 504 (1961); Michele Monteleone, supra at 694; Warner L. Jones, 24 T.C. 525 (1955).

Although the joint account was in a Michigan bank, withdrawals were made by mail deposited in California and the fraudulent appro

1 SEC. 165. LOSSES.

(a) GENERAL RULE.-There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise.

(c) LIMITATION ON LOSSES OF INDIVIDUALS.-In the case of an individual, the deduction under subsection (a) shall be limited to—

(3) losses of property not connected with a trade or business, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft.

(e) THEFT LOSSES.-For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss. All statutory references are to the Internal Revenue Code of 1954 unless indicated otherwise.

Our recent decision in Estate of R. L. Adame, 37 T.C. 807 (1962), distinguishIng between "theft" and "embezzlement," related only to the problem of fraud with intent to evade tax (see James v. United States, 366 U.S. 213 (1961)) and is not relevant to the issue we face here.

priations, if any, took place when the withdrawn funds were used by Kathryn for her own purposes and not for Miriam's purposes, such uses all occurring in California. Both parties maintain, in effect, that the issue of whether petitioners' loss was on account of theft is to be determined under California penal law, which, both parties aver, is the same as Michigan penal law for these purposes. It is not necessary to decide whether this Court can be bound by the parties' agreement on these matters since we conclude, infra, that California penal law applies of its own force to Kathryn's actions.

"Embezzlement" is defined under California law (Cal. Pen. Code sec. 503) as "the fraudulent appropriation of property by a person to whom it has been intrusted." It is not necessary that a formal trust be created in order to find that the property has been entrusted. Cal. Pen. Code sec. 506. See People v. Steffner, 67 Cal. App. 23, 227 Pac. 699 (Ct. App., 3d Dist., 1924).

The money withdrawn from the guardianship account and deposited in the joint account had been held by Kathryn for the use of Miriam, only in her capacity as guardian of Miriam's property. We conclude that the money used to open the account and later withdrawn by Kathryn belonged to Miriam.

Although Kathryn appeared under Michigan law to have an ownership interest in the property as against the rest of the world, this statutory presumption is not conclusive as between the depositors and is rebuttable. Van't Hof v. Jemison, 291 Mich. 385, 289 N.W. 186 (1939). Cf. Jacques v. Jacques, 352 Mich. 127, 89 N.W. 2d. 451 (1958), in which the Michigan Supreme Court affirms the proposition that the presumption is rebuttable but does not find sufficient evidence to counteract the presumption in that case. In effect, that presumption is held to place both the burden of coming forward with evidence and the burden of persuasion on one who would attack the presumption.

We have determined that Miriam had no intention to transfer any

While we know that Kathryn's permanent residence was in California from 1949 until her death, we have no other evidence suggesting that all of the funds Kathryn withdrew from the joint account were withdrawn by mail deposited in California and were used in California. However, respondent states on brief that the funds were so withdrawn and used by Kathryn for her personal purposes and petitioners appear to assume the same. In the absence of any evidence indicating the contrary we will so treat Kathryn's withdrawals and use of the funds.

Sec. 506. Person controlling or intrusted with property of another; misappropriations; payment of laborers and materialmen as use of contract price Every trustee, banker, merchant, broker, attorney, agent, assignee in trust, executor, administrator, or collector, or person otherwise intrusted with or having in his control property for the use of any other person, who fraudulently appropriates it to any use or purpose not in the due and lawful execution of his trust, or secretes it with a fraudulent intent to appropriate it to such use or purpose, is guilty of embezzlement • (Enacted 1872. As amended Stats. 1907, c. 490, p. 892, § 1; Stats. 1919, c. 518, p. 1090, 1.) [Emphasis supplied.]

Mich. Stats. Ann. sec. 23.303 provides that any bank account registered in the form of this joint account creates a joint tenancy with right of survivorship and each party may withdraw the entire amount in the account.

ownership interest in this money to Kathryn. (See People v. Kirkpatrick, 77 Cal. App. 104, 246 Pac. 84, 85 (Ct. App., 2d Dist., 1926), where the court found that as to certain funds given to the defendant, "there is nothing in the evidence to indicate either a gift or a loan." The court there concluded that the money was entrusted to the defendant, subject to embezzlement by him, and was in fact so embezzled.) We credit Miriam's testimony as to her intentions (see People v. Stanford, 16 Cal. 2d. 247, 105 P. 2d. 969, 970 (1940), where the court stressed the fact that the defendant "knew that Mrs. Stevens was unaccustomed to business dealings, had implicit confidence in him and signed everything he gave her to sign") and are impressed by Kathryn's letter and her deathbed confession that she, too, did not understand that Miriam gave her an ownership interest in Miriam's money in the joint account.

We conclude that petitioners have carried their burden of persuading us that Kathryn did not have an ownership interest in the money in the account above-described as belonging to Miriam. Within the terms of Cal. Pen. Code sec. 506, supra, Kathryn was a "person otherwise intrusted with or having in [her] control property for the use of any other person.'

Since Kathryn appeared to be an owner of the joint account neither California (Cal. Fin. Code sec. 852) nor Michigan (Mich. Stat. Ann. sec. 23.303) would forbid her to withdraw money from the account, at least in the absence of some agreement with Miriam not to do so. Such withdrawal does not necessarily require a conclusion that the money had been appropriated improperly by Kathryn, since she might have transferred the amounts withdrawn to Miriam or used it for some purpose approved by Miriam.

However, when Kathryn received the withdrawn amounts in California and used it there for her own purposes (see footnote 4, supra), then she appropriated those amounts for a "purpose not in the due and lawful execution of [her] trust." Cal. Pen. Code sec. 506, supra. As we have noted above, Kathryn indicated on at least two occasions that she knew she was misappropriating Miriam's funds. Such knowing misappropriation of entrusted funds constitutes fraudulent appropriation under California law and completes the elements of the crime of embezzlement. People v. Talbot, 220 Cal. 3, 28 P. 2d 1057, 1061-1062 (1934)."

"The crime of embezzlement is purely statutory, and legislation with reference thereto resulted from the failure of prosecutions under the common-law crime of larceny to reach a case where the possession of property was obtained by consent, and the resulting breach of trust by the agent, officer, or bailee, although it as effectually deprived the owner of his property as though it had been taken out of his possession by stealth, was not punishable at common law. In the case of People v. Gordon, 133 Cal. 328, 65 P. 746, 747, 85 Am. St. Rep. 174, speaking of our Code definition of embezzlement, the court says: "The essential elements of embezzlement are the fiduciary relation arising where one intrusts property to another, and the fraudulent appropriation of the property by the latter.' There would seem to be no hidden meaning in the use of the word fraudulent

Respondent argues that "a withdrawal by a joint owner cannot constitute embezzlement," citing People v. Cravens, 79 Cal. App. 2d 658, 180 P. 2d 453 (Ct. App., 1st Dist., 1947). That case and the cases and materials cited in it depend upon the usual statutory requirement for embezzlement that the property taken be property "of another." This has been interpreted to mean that the property must be wholly of another.

We have found that Miriam and Kathryn did not understand that Kathryn was to have an ownership interest in Miriam's money. As between Miriam and Kathryn, Kathryn had no ownership interest in the property. Consequently, as to Kathryn, the money used to open the joint account was property wholly of another.

However, even if it be considered that Kathryn's bare legal title might be sufficient to give her an "interest" in the property, it does not follow that Kathryn could not embezzle funds from the joint

account.

In Cravens the court stated that (180 P. 2d at 456):

Since by opening the joint bank account Mrs. Reame voluntarily placed a title in common to her money in appellant and voluntarily placed it in his power to withdraw the funds therefrom as owner he could not be guilty of embezzlement or larceny. People v. Foss, 7 Cal. 2d 669, 670, 62 P. 2d 372; People v. Hotz, 85 Cal. App. 450, 452, 259 P. 506; cases collected in the notes in 17 A.L.R. 982 and 31 L.R.A., N.S., 822; 29 C.J.S., Embezzlement, § 16, p. 693; 36 C.J., Larceny, sec. 153d, p. 782. •

It is clear that this statement constitutes a holding. However, every authority cited in Cravens for that proposition involved the question of whether the defendant, if he was a partner, could be guilty of embezzling partnership property. None of the cited materials exonerated a defendant from an embezzlement charge on the ground that he had an ownership interest in the property, unless that defendant was held by the court to be a member of a partnership owning the property. Even in Cravens, the joint bank account was opened by the complaining witness for herself and the defendant therein in order to allow the defendant to use her money in their partnership. There was no further discussion in Cravens regarding joint bank accounts and we have not been cited to nor have we found any other California cases which hold or even state anything with regard to embezzlement from joint bank accounts.

In the cases relied upon in Cravens and in Cravens itself, where a partnership was found it was clear that those who gave the money to the defendants did so with the intention of granting the defendants an

in such definition. It is true that where, as in the cases of People v. Royce, 106 Cal. 173, 37 P. 630, 39 P. 524, and People v. Page, 116 Cal. 386, 48 P. 326, the money is deposited in the personal account of the defendant but no evidence is introduced showing that it was ever converted to his own use, no 'fraudulent appropriation' is shown. But we are sure that if the evidence in such cases showed, without question, an appropriation of the money to the personal use of the defendants, and contrary to the purposes of the trusts, the fraudulent intent would have been imputed to them."