§165 — Losses

485, 493 (2017), supplementing and overruling in part 147 T.C.

We will also overrule Mr.

Lastly, we note that petitioner's reliance on our decisions in Cronan and Beaumont is misplaced as both those decisions involved tax years before the effective date, and were superseded by the 1934 enactment, ofsection 23(g).

Lastly, we note that petitioner's reliance on our decisions in Cronan and Beaumont is misplaced as both those decisions involved tax years before the effective date, and were superseded by the 1934 enactment, ofsection 23(g).

Groetzinger * * * casts some doubt on the continued vitality of the reasoning of Nitzberg and Boyd, but it did not overrule those decisions.

This case is inapposite because the taxpayer “carried the fund on its books as an asset,” id., whereas here Risk Retention was a separate entity.

Pascucci had a “sufficient nexus” to the assets in the separate accounts to claim a theft loss deduction, but that standard does not apply here.

The Gates Opinion is inapposite to the resolution ofwhether petitioners are entitled under section 165 to deduct as an ordinary loss the claimed Elm Court loss.

We will not attempt to distinguish Mr. Potok's criminal intent in causing petitioners to enter the contract from his intent in taking the improperly used $188,070 from them; we believe these intertwined actions were part ofa scheme by Mr. Potok to wrongfully obtain funds belonging to petitioners. We therefore find that petitioners were the victims ofa "theft" as that term is defined for purposes ofsection 165 and may claim a theft loss deduction under that section.

The designation of section 165(d) as a subsection of section 165 (which, unlike section 23 of the 1934 Act and 1939 Code, contains only a few of the kinds of deductions the income- tax law allows) might suggest that section 165(d) does not limit deductions allowable under other sections of the Code (such as section 162) .

Subsection (d) of section 165 specifically addresses' wagering _ 4 _ losses, as follows,: "Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions ." Petitioner argues that the limitation of section 165(d) does not apply where a taxpayer is a professional gambler ; i .e ., in the business of wagering.

However, section 165(h)(2) does not apply here because the Court is satisfied that the claimed loss arose in connection with petitioner’s trade or business.

The Atrium Assets: Loss Deduction Under Section 165(a).................................51 D. The 1988 Atrium Transaction: Disavowal of Form.......52 1. Issue............................................52 2. Arguments of the Parties.........................52 3. Analysis..........................................53 a. Introduction.................................53 b. The Danielson Rule Does Not Apply............54 c.

8 In view of these conclusions, we need not decide whether the Roots undertook the activities here intending to earn a profit (the first requirement discussed in Opinion Part I.A).

Under the circumstances, we also need not decide whether section 165 or 166 must be applied before section 475(a)(2).

However, it is unclear whether petitioner is including costs ofthese items in the $600,000.

We need not decide whether petitioners' reported downpayment loss is a section 165 loss or a section 166 nonbusiness bad debt.

We need not decide this issue, however, because petitioners defaulted on their loan and have failed either to show that the foreclosure action was illegal pursuant to the deed of trust securing that loan or to substantiate the alleged theft loss.

which we are not convinced, petitioners have failed to prove 2005 is the proper year for a corresponding deduction .

Petitioner argues that recognition of the deferred loss by the purchasing party is inconsistent with a general principle that allowable losses should be confined to the taxpayer sustaining them, citing various cases, including New Colonial Ice Co.

Served 03/03/25 2 After concessions,2 the issue for decision is whether petitioner is entitled to a casualty loss deduction of $49,500 pursuant to section 165(c).

Finally, we note that our analysis pursuant to section 165(c) is fairly understood as 23 [*23] considering the substance of the option transactions at issue, albeit through a somewhat different framework from the one furnished by the economic substance doctrine.

“The elements of res judicata are: (1) identity of parties, (2) prior judgment by a court of competent jurisdiction, (3) final judgment on the merits, and (4) the 10 Because we hold that the disputed amounts are not includible in petitioner’s income, we need not address whether he is entitled to a theft loss deduction under section 165 as he contends he is in an amendment to the Petition.

(Water Warehouse), for a theft loss deduction pursuant to section 165 or, in the alternative, a deduction for nonemployee compensation and (2) liable for an addition to tax for failure to timely file a return pursuant to section 6651(a)(1) for 2016.

After respondent’s concessions of the accuracy-related penalties, the issues for consideration are whether petitioners are: (1) entitled to deductions for expenses as reported on Schedules C, Profit or Loss From Business, for the years in issue, (2) entitled to a theft loss deduction pursuant to section 165 for 2015, and (3) liable for additions to tax pursuant to section 6651(a)(1) for the years in issue.1 FINDINGS OF FACT Some of the facts are stipulated and are so found.

Theft Loss Deductions Pursuant to Section 165 Section 165(a) allows a deduction for losses sustained during the taxable year and not compensated for by insurance or otherwise.

Consequently, giving effect to respondent's concession, we hold that with respect to the Oak Hill property petitioners are entitled to a depreciation deduction of $8,527 for each tax year at issue.

After concessions by the parties, the issues for decision are: (1) whether for 2009 the Cuthbertsons are entitled to a loss deduction of $100,137 from their wholly owned partnership, Craft Holdings, LLC, from the purported sale ofa golfcourse (we hold that they are not); (2) whether for 2009 the Cuthbertsons are entitled to a loss deduction of $5,278,404 for the purported sale or abandonment ofgolfcourse improvements by their other wholly owned partnership, Craft Development, LLC (we hold that t

Governing Statutory Framework Section 165 governs "Losses." Petitioner concedes that "non-REMIC asset- backed securities" are debts evidenced by a "security" within the meaning ofsec- tion 165(g)(2)(C).

Governing Statutory Framework Section 165 governs "Losses." Petitioner concedes that "non-REMIC asset- backed securities" are debts evidenced by a "security" within the meaning ofsec- tion 165(g)(2)(C).

We hold, therefore, that MCMIM is entitled to deduct its section 165(a) loss with respect to its worthless partnership interest in Companies for the tax year in issue.

To the extent petitioners are seeking to advocate a position contrary to these settlements, we hold that their arguments are not supported by the record and their stipulations with respondent are binding.

To the extent petitioners are seeking to advocate a position contrary to these settlements, we hold that their arguments are not supported by the record and their stipulations with respondent are binding.

To the extent petitioners are seeking to advocate a position contrary to these settlements, we hold that their arguments are not supported by the record and their stipulations with respondent are binding.

On these returns petitioners conceded that they are not entitled to the theft loss reported originally for 2011 pursuant to section 165 and made changes to reflect that concession.

Consequently, we hold petitioners have failed to satisfy their burden of proof.

- 21 - [*21] We hold, therefore, that petitioners are not entitled to a theft loss deduction under section 165.

Consequently, we hold petitioners have failed to satisfy their burden of proof.

Because we hold that none ofthe additional amount may be deducted, we need not reach the issue ofsubstantiation ofthe additional amount that respondent raised.

A taxpayerwho, like petitioners, claims a loss deduction due to theft pursuant to section 165(c)(3) must prove two elements to properly substantiate a deduction.

We hold it does not.

We hold they are not.

Pursuant to section 165(h), the casualty loss deduction is allowed only to the extent that the loss from each casualty exceeds $100 and to the extent that the net casualty loss for the taxable year "exceeds 10 percent ofthe adjusted gross income ofthe individual" for that taxable year.

Issue 3: Gambling Winnings of$1,285 for 2006 In the stipulation offacts, petitioner concedes that she had failed to report gambling winnings of$1,285 for taxable year 2006, and respondent concedes that petitioner is entitled to an itemized deduction for gambling losses pursuant to section 165(d) of$1,285 for taxable year 2006.

ner's OPIS transaction lacked economic substance; (4) even ifthe OPIS transaction functioned for tax purposes in the manner petitioner intended, the claimed losses - 37 - are artificial and not deductible under section 165; and (5) any allowable loss is limited by the at-risk rules ofsection 465." We hold that petitioner's OPIS transaction lacked economic substance.

We hold that petitioner is not 2All section references are to the Internal Revenue Code for 2004 (regarding the deficiency case) and 2002 (regarding the collection action), and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated.

For the reasons explained bélow, we hold that they are not.

SERVED Sep 23 2010 to a casualty loss deduction pursuant to section 1652 for the uninsured fire loss of a cabin in 2004.

Accordingly, we hold that petitioner is not entitled to a current deduction for his 2004 tax year for travel expenses relating to the investigation of new rental properties under either section 162 or section 165 .

After concessions by respondent,' the issues for decision are : (1) Whether petitioners are entitled to a $28,877 casualty loss claimed on Schedule A, Itemized Deductions, pursuant to section 165(c) for water damage sustained to their home ; and (2,) whether petitioners are liable for a section 6662 accuracy-related penalty .2 FINDINGS OF FACT Some of the facts have been stipulated, and the stipulated facts and accompanying exhibits are hereby incorporated-by reference into our findings .

Conclusion- = For,the foregoing' reasons,„ we hold -that petitioner entitled-"to-include ~in_ its cost of goods.

Section 165 provides that there shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise .

Pursuant to section 165(h) (2), a net - 6 - casualty loss is allowed only to the extent it exceeds 10 percent of adjusted gross income.

We hold that respondent is not estopped from disallowing the , claimed amounts .

Respondent asserts that for purposes of applying section 165(d) to casual gamblers like petitioners, the correct analysis and methodology is set forth in Chief Counsel Advice 2008-011 (Dec .

We hold that they are not .

After applying section 165(h)(2), the total theft loss amount allowable is $113 .

Asia result, we hold that petitioner is not entitled to a theft loss deduction under section 165 .

Individual Income Tax Return, petitioner claimed a casualty loss deduction of $19,068, after application of the $100 limitation, pursuant to section 165(h)(1), and the 10 percent of adjusted gross income limitation, pursuant to section 165(h)(2).

Conclusion We sustain respondent’s determination to include $40,347 in petitioner’s gross income for the audit year, and we hold that petitioner is not entitled to a deduction for loss of the IBM sale proceeds of $27,573 as an offset to that income inclusion.

Based on this conclusion, we hold that petitioner is entitled to a casualty loss deduction for water damage to her house and personal belongings to the extent substantiated.5 Substantiation of Loss Petitioner presented varied disorganized records to substantiate the loss.

After a concession by petitioners,2 the issues for decision are: (1) Whether petitioners are entitled to deduct a loss pursuant to section 165 on the sale of their former residence in 1994; and (2) whether petitioners are liable for the accuracy-related penalty for 1994.

We hold that they did not.

Consequently, it is not unusual for a taxpayer who suffers the loss of property due to some casualty to sense a loss greater than that allowable as a deduction pursuant to section 165(a).

We hold that petitioner did not; accordingly, we also hold that petitioner did not overpay his income tax for 1989.

We hold that the casualty loss was not sustained in 1996 but in a prior year.

We hold that ACC must capitalize both groups of expenditures to the extent described herein.

Rather, we hold that until the Elbow Lake property is sold, abandoned, or otherwise disposed of in a completed transaction, Lakewood is not entitled to a loss deduction.

As we stated in that case: “A taxpayer’s ignorance of the law is no excuse for failure to comply with it.” Moreover, petitioner, a certified public accountant with an active tax preparation practice, and admittedly aware of section 165 governing the deductibility of losses, should have been aware of the section 165(d) limitation on net gambling losses.

Section 165 vs. Section 166 Section 165 permits an individual a deduction for a loss sustained during the taxable year, if the loss (1) is not compensated for by insurance or otherwise and (2) is incurred in a trade or business or any transaction entered into for profit, or arises from fire, storm, shipwreck, or other casualty, or from theft. § 165(a), (c). Section 165(g) provides special rules for worthless securities. Section 166 permits a deduction for a bona fide debt that becomes worthless

Commissioner, T.C. Memo. 2011-54; aff'd, 713 F.3d 849 (6th Cir. 2013); Country Pine Fin., LLC v. Commissioner, T.C. Memo. 2009-251. 4Respondent also argues that petitioners' claimed losses from the HVB note must be disallowed under the loss rules in sec. 165, the at-risk rules in sec. 465, the substance over form doctrine, and the step transaction doctrine. We need not reach these arguments because ofour holding that petitioners' CARDS transaction lacks economic substance. -13- [*13] Petitioners

Commissioner, T.C. Memo. 2011-54; aff'd, 713 F.3d 849 (6th Cir. 2013); Country Pine Fin., LLC v. Commissioner, T.C. Memo. 2009-251. 4Respondent also argues that petitioners' claimed losses from the HVB note must be disallowed under the loss rules in sec. 165, the at-risk rules in sec. 465, the substance over form doctrine, and the step transaction doctrine. We need not reach these arguments because ofour holding that petitioners' CARDS transaction lacks economic substance. -13- [*13] Petitioners

It is petitioner's position that, even though petitioner has taken a deduction for taxable year 2001 for $199,114,494 ofthe 2001 stock loss in question, section 165 is the specific provision demonstrating Congress' intent to allow petitioner also to take the respective deductions for taxable years 2002 and 2003 ofall ofthe 2002 asset losses in question and all ofthe 2003 asset losses in question. In support ofthat position, petitioner argues that, because section 165 by its terms entitles petiti

1.165-9(a), Income Tax Regs., provides that "[a] loss sustained on the sale ofresidential property purchased or constructedby the taxpayer for use as his personal residence and so used by him up to the time ofsale is not deductible under section 165(a)." However, a loss is deductible ifthe taxpayer appropriates the property to income-producing purposes and uses the property for those purposes up to the time ofsale. Sec. 1.165-9(b), Income Tax Regs. In evaluating whether a taxpayer has converted

1) (demonstrating that the term "sale or exchange" is narrower than the term "sale or other disposition"), Congress has enacted numerous statutes that require capital gain and/or loss in certain situations where the dispositions are technically not sales or exchanges, including, inter alia, section 165(g), applicable to losses for worthless securities, and section 1234A, applicable to certain terminations ofrights or obligations with respect to property that is (or on acquisition would be) a cap

If a disposition of a capital asset is not a sale or exchange or required by statute to be treated as such, section 1211 does not apply and the loss allowable under section 165 is an ordinary loss.

Section 165(g) Worthless Security Deduction As we found above, petitioner' s transfers constituted equity, no debt . Petitioners argue that they are entitled to deduct as a capital loss for a worthless security in 2005 the amount of petitioner's basis in his Lucca stock . Respondent argues tha to the extent petitioner's Lucca stock became worthless , it did not do so until 2006 . Under section 165(g), securities which are capital asset s that become worthless during a taxable year are "treated a

accrued beyond the year .in which the expenditures were made and, on that basis, distinguished INDOPCO, Inc . v . Commissioner, 503 U-.S . 79 (1992) . The = - bankruptcy judge had found explicitly that the provisions for the payment of the breakup fees did not enhance,the amounts that the debtors' shareholders actually received in the takeover transactions ., The District Court also agreed with the bankruptcy court that the failed merger transactions with white knights were separate transactions

276 EX. Conclusion. 279 Goeke, Judge: The issue for decision is whether Santa Fe Pacific Gold Co. (Santa Fe) is entitled to a deduction of $65 million for a payment made to Homestake Mining Co. (Homestake) as a result of the termination of a merger agreement between Santa Fe and Homestake (termination fee) for Santa Fe’s 1997 tax year

Theft Loss Deduction Petitioner asserts that he may claim a $511,50014 theft loss deduction under section 165 for 2001 or alternatively for 2002 that may be carried back to 1999 in connection with his investment in the Anderson Ark programs.

MMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 14384-99, 9129-00. Filed October 31, 2005. F is a foreign corporation. P, a U.S. subsidiary of F, is a film processing company. On its amended 1992 and 1993 Federal income tax returns, P claimed sec. 165, I.R.C., loss deductions relating to the alleged termination of three customer relationships. In 1988, S1, a U.K. subsidiary of F, lent £29,498,525 (i.e., the equivalent of $50 million) to S2, a subsidiary of P. In 1996, S2 and S3 (i.e., ano

Petitioners, on the other hand, argue that, according to statements made by one of respondent’s agents, the general rule under section 165 does not apply to remainder interests and, therefore, that they should be able to deduct at least petitioner’s share of the fair market value of the barn immediately before the casualty less the salvageable amount of the remaining lumber, an amount equal to one-fourth of $44,000 or - 5 - $11,000.

MMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 14384-99, 9129-00. Filed October 31, 2005. F is a foreign corporation. P, a U.S. subsidiary of F, is a film processing company. On its amended 1992 and 1993 Federal income tax returns, P claimed sec. 165, I.R.C., loss deductions relating to the alleged termination of three customer relationships. In 1988, S1, a U.K. subsidiary of F, lent £29,498,525 (i.e., the equivalent of $50 million) to S2, a subsidiary of P. In 1996, S2 and S3 (i.e., ano

The regulations under section 165 provide: “A loss sustained on the sale of residential property purchased or constructed by the taxpayer for use as his personal residence and so used by him up to the time of the sale is not deductible under section 165(a).” Sec.

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

Section 165 Theft Loss . . . . . . . . . . . . . . 35 2. Estoppel Principles . . . . . . . . . . . . . . . . 37 a. Equitable Estoppel . . . . . . . . . . . . . 37 b. Collateral Estoppel . . . . . . . . . . . . 39 c. Judicial Estoppel . . . . . . . . . . . . . 41 C. Discussion of Partnership Level Theft Loss Deductions . 43 1. Determination of Wheth

The method of valuation to be used in determining a casualty loss is prescribed in section 1.165-7(a)(2), Income Tax Regs., which provides as follows: (i) In determining the amount of loss deductible under * * * [section 165], the fair market value of the property immediately before and immediately after the casualty shall generally be ascertained by competent appraisal.

Because we have decided that the Color Q payment is an ordinary and necessary business expense of the S Corporation that is deductible pursuant to section 162(a), we need not consider the parties' arguments regarding the deductibility of the payment as a loss pursuant to section 165.5 We have considered the parties' remaining arguments concerning the deductibility issue and find them to be without merit.

To be entitled to deduct an abandonment loss under section 165, a taxpayer must show: (1) An intention on the part of the owner to abandon the asset, and (2) an affirmative act of abandonment.

urse of the hearing in Washington, D.C., petitioner conceded that he is not in the trade or business of either gambling or appearing as a contestant on television game shows. In addition, petitioner stated that his theory of the case rests solely on section 165. Discussion The issue for decision concerns the proper characterization of the expenses incurred by petitioner in attending and participating in the television game show "Wheel of Fortune".6 Respondent determined that petitioners erred in

Petitioners bear the burden of proving both the occurrence of a casualty or theft within the meaning of section 165 and the amount of the loss .

680, 689 (subsequently (continued...) - 7 - Congress has made a policy decision such that, while section 165 generally allows losses to be deducted from gross income, “[l]osses from wagering transactions shall be allowed only to the extent of the gains from such transactions.”7 Sec.

995) . Evidence is not credible if the Court is not convinced that it is worthy of belief . Id . On the basis of the record before us, we conclude that petitioner did not introduce credible evidence with respect to the factual issues presented under section 165 . Petitioner provided only incomplete and inconclusive documentation, along - 11 - with self-serving and incredible testimony. Because petitioner did not introduce credible evidence with respect to those factual issues, the burden of proo

tioner has neither asserted that respondent bears the burden of proof as to the issue at hand, nor disputed respondent’s assertions that the burden of proof lies with petitioner. Petitioner’s theft loss deduction requires that we focus primarily on section 165. Section 165(a) allows a deduction for any loss sustained during the taxable year that is not compensated for by insurance or otherwise. In the case of an -6- individual such as petitioner, however, losses are deductible only to the extent

For purposes of section 165, the term “theft” includes, but 7 The record is not clear whether respondent ever took any action regarding the losses claimed by petitioner for 1995 through 1997 in respect of the Merritt Island property.

Losses otherwise allowable under section 165 are disallowed under section 267 to prevent abuses resulting from the generation of loss deductions by persons with common economic interests.

2020-42, at *26 (“As used in section 165, the term ‘theft’ is a word of general and broad connotation, intended to cover any criminal appropriation of another’s property .

Under section 165, a taxpayer can deduct nonbusiness losses that “arise from fire, storm, shipwreck, or other casualty, or from theft.” Served 03/28/23 2 [*2] § 165(a), (c)(3).1 He can claim these losses only for certain kinds of damage, only for damage caused in certain ways, and only for an amount of damage calculated according to certain rules. I. Th

s for claiming a loss deduction such as the establishment of basis and fair market value. See secs. 1001, 1011 (providing that a tax loss occurs when there is a sale or other disposition of property and its adjusted basis exceeds fair market value); sec. 165 (providing that loss deductions are permitted if the specific requirements are met); sec. 165(b); sec. 1.165-1(c)(1), Income Tax Regs. (providing that the amount of a deduction under section 165 is limited to the taxpayer’s basis in the asse

781, 786 (1974) (“Nor can * * *[the taxpayer] draw any sustenance from section 165 in order to sustain an abandonment loss.

Deduction Under Section 165 A taxpayer is entitled to deduct uncompensated losses resulting from theft.

Deduction Under Section 165 A taxpayer is entitled to deduct uncompensated losses resulting from theft.

Individual Income Tax Return, for the tax year 2011, claiming a $407,327 Schedule A deduction under section 165 for a theft loss related to the six Southern California properties.

Petitioners have not established that either PPI or SRI abandoned the architecture plans as required for a section 165 loss deduction.

Petitioners have not established that either PPI or SRI abandoned the architecture plans as required for a section 165 loss deduction.

Theft Loss Analysis Section 165 generally permits taxpayers to deduct against their ordinary income the amount ofany uncompensated loss resulting from theft for the year in which the taxpayer sustains that loss.

Belated Theft Loss Claim Petitioners contend in their seriatim reply briefthat the revenue agent should have allowed Mowry Rebar a theft loss deduction under section 165 "for the distributions/withdrawals * * * [taken by G.

Petitioners have not established that either PPI or SRI abandoned the architecture plans as required for a section 165 loss deduction.

Petitioners have not established that either PPI or SRI abandoned the architecture plans as required for a section 165 loss deduction.

Petitioners have not established that either PPI or SRI abandoned the architecture plans as required for a section 165 loss deduction.

etitioners' 2011 tax return was not received until September 16, 2012, after the ¹4$158,252 less 50% special depreciation allowance. ¹5Respondent incorrectly refers to this loss as a capital loss in his pretrial memorandum. An abandonment loss under sec. 165 is an ordinary loss unless it arises from the sale or exchange ofa capital asset. Allen v. Commissioner, T.C. Memo. 1994-165. - 15 - discharge in bankruptcy. In addition, the records from the bankruptcy that were included as part ofthe recor

ly before trial, Evans found evidence that he contends proves that the loss resulting from the foreclosure sale ofthe Newport (continued...) - 16 - [*16] The parties agree that the legal authority for deducting the loss from the foreclosure sale is section 165. Section 165 allows a deduction for any loss "sustained during the taxable year" and not compensated for by insurance or otherwise. Sec. 165(a).¹² Regulations under section 165 provide that a loss is treated as sustained during the taxable

Losses under section 165 may be either ordinary or capital.

Governing Statutory Framework Section 165 governs “losses.” Petitioner concedes that “non-REMIC asset-backed securities” are debts evidenced by a “security” within the meaning of section 165(g)(2)(C).

'In determining the amount ofloss deductible under section 165, the taxpayer's adjusted basis in the property is the amount ofthe adjusted basis prescribed in sec.

or conversions by the boyfriend." For the reasons discussed below, we conclude that none of the amounts at issue are properly deductible as reasonable- compensation under section 162 but that all these amounts, are deductible.as theft losses under section 165. Section 162(a) allows as a deduction ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including "a.reasonable allowance for salaries, or other compensation forspersonal service

Only then would they know the amount of their unreimbursed loss that they could claim as a section 165 deduction .

The court held""it important that the sentence included jail time, a fine, and restitution, so that the, restitution was compensatory whi-le the jail time and,fine were punitive . Id .. at,674 . It distinguished Bailey v . Commissioner, 756 F .2d 44 (6th Cir . 1985), in which a'taxpayer tried to deduct payments made to satisfy a restitution order that had previously been a fine . Stephens , 905 F.2d at 674 . It therefore held that it would not be against public policy to allow deductions for thi

f the goods pursuant to the joint venture agreement, and Jebuni was the party responsible for manufacturing and selling the goods . 5 - Petitioner's investment, rather, resulted in a loss and if properly substantiated may be deductible pursuant .to section 165 . See sec . 165(a), (c ) II . Business Loss Deduction Deductions are strictly a matter of legislativ grace, and taxpayers must satisfy the specific . requirements for any deduction claimed. See INDOPCO, Inc . v . Commission r , supra at 84

Even though an activity is passive, casualty losses are permitted if the casualty requirements'in section 165 are met .

by an individual if it arises from a fire, storm, shipwreck, or other casualty, or from theft, except as provided in section 165(h) . Sec . 165(c)(3) . There is no question about whether petitioner's loss generally qualified as a casualty loss under section 165 . Although negligence may not be a bar to a casualty loss deduction, courts have held that gross negligence may be . Heyn I -4- v . Commissioner , 46 T .C . 302, 308 (1966) . In addition, section 1 .165-7(a)(3), Income Tax Regs ., provide

"I .R .C .,§ 165 losses have been referred to as abandonment losses to reflect that some act is required which evidences an intent to discard or discontinue use permanently ." Gulf Oil Corp .

Inherent in section 165 is the requirement that to claim a deduction for the loss~of property, the taxpayer must have been the owner of the property at the time of the loss .

e Hagman v. Commissioner, T.C. Memo. 1999-42. Nor does the record establish that Dr. Rinker abandoned her pursuit of the proposed venture during 1999. Her payments to financial and legal advisers are therefore not deductible in that year pursuant to section 165. See sec. 165(c)(2); Hagman v. Commissioner, supra. b. Payments to Secretaries and Bookkeepers Dr. Rinker testified that she engaged several people for temporary secretarial work, bookkeeping, and accounting in 1999. At trial, Dr. Rinker

Los ies may be deductible under section 165 to the extent that the r are "not compensated for by insurance or otherwise." Petition:rs produced at trial a letter from GEICO Insurance Company :tating that petitioners were insured for the period during wiich the truck was stolen and that they filed no claims during t iat period.

Smith embezzled the diamond ring and that petitioners are entitled to a related section 165 theft loss deduction in 2000.

He has failed to establish that he is entitled to the section 165 theft loss deduction.

Section 1655 provides generally for the treatment of losses 5 Section 165 provides in pertinent part as follows: SEC.

Section 1655 provides generally for the treatment of losses 3 Section 165 provides in pertinent part as follows: SEC.

Section 165 allows a deduction for any loss sustained during the taxable year and not compensated for by insurance or otherwise. Sec. 165(a). The deduction, however, is limited to those losses incurred in a trade or business, in any transaction entered into for profit, or as a result of a fire, storm, theft, or other casualty. See sec. 165(c)(1), (

etitioners’ deck was the result of wood rot and deterioration. The damages and losses resulting from the collapse of the deck were not caused by a “sudden” event, and - 8 - therefore the collapse of the deck was not a casualty within the meaning of section 165. Petitioners are not entitled to a casualty loss deduction. 2. Section 72(t) Section 72(t)(1) imposes an additional tax on early distributions from qualified retirement plans “equal to 10 percent of the portion of such amount which is incl

come tax (tax): -2- Additions to Tax Year Deficiency Sec. 6651(a)(1)1 Sec. 6651(a)(2) Sec. 6654(a) 2000 $103,811 $21,728.92 $12,071.62 $5,150.77 The issues remaining for decision are: (1) Is petitioner entitled to deduct for 2000 a theft loss under section 165? We hold that he is not. (2) Is petitioner liable for 2000 for the addition to tax under section 6651(a)(1)? We hold that he is. (3) Is petitioner liable for 2000 for the addition to tax under section 6654(a)? We hold that he is to the ext

n individual certain losses commonly referred to as casualty losses. A casualty loss is allowable to an individual for a loss of property not connected with a trade or business or with a transaction entered into for profit, if the loss results from 1Sec. 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 individ

es v. S.S. White Dental Mfg. Co., 274 U.S. 398 (1927). In general a taxpayer bears the burden of proof. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The burden 4 Expropriation losses are not casualty or theft losses for purposes of sec. 165. Powers v. Commissioner, 36 T.C. 1191, 1192-1193 (1961). - 7 - as to a factual issue relevant to the liability for tax may shift to the Commissioner if the taxpayer introduces credible evidence and satisfies the requirements under section 74

alls under section 162 as an ordinary and necessary business expense, so we rely on the general principle that a deduction for property forfeited under Federal or State forfeiture laws, if allowed at all, falls under the loss deduction provisions of section 165. See Fuller v. Commissioner, 213 F.2d 102, 105-106 (10th Cir. 1954), affg. 20 T.C. 308 (1953); Holmes Enters., Inc. v. Commissioner, 69 T.C. 114, 116-117 (1977); Holt v. Commissioner, 69 T.C. 75, 78-79 (1977), affd. per curiam 611 F.2d 11

The primary motive of acquiring a family residence brings the purchase within the ambit of section 262, which provides that “no deduction shall be allowed for personal, living, or family expenses.” The regulations under section 165 provide: “A loss sustained on the sale of residential property purchased or constructed by the taxpayer for use as his personal residence and so used by him up to the time of the sale is not deductible under section 165(a).” Sec.

Taxpayers are entitled to take loss deductions under section 165 "not only for assets that the taxpayer has abandoned, with or without their having become - 10 - worthless, but also for assets that have become worthless, with or without having been abandoned." Echols v.

The issues for decision are: (1) Whether petitioner sustained an abandonment loss during tax year ended 1995 that qualifies as a deductible loss pursuant to section 165; and (2) whether petitioner is liable for the section 6651(a)(1) addition to tax for failure timely to file an income tax return for tax year ended 1995.

Section 165 allows a deduction for losses incurred in connection with any transaction entered into for profit, though not connected with a trade or business. Sec. 165(c)(2). The burden of proof is on the taxpayer to demonstrate the necessary profit objective. Rule 142(a); Golanty v. Commissioner, 72 T.C. 411, 426 (1979), affd. without opinion 647 F

Section 165 allows an individual taxpayer to deduct a theft loss in the year during which the taxpayer discovers such loss. See sec. 165(a), (c)(1), (e). Petitioner bears the burden of proving that a theft (and not, for instance, merely a mysterious disappearance of the property) has occurred and that the requirements of section 165 have been met.

- 2 - expenses of a trade or business under section 162, or, in the alternative, under section 165.2 Petitioners resided in Clinton, Iowa, at the time the petition was filed.

Whether petitioner is entitled to a casualty loss deduction in 1994 under section 165 with respect to the collapse of a portion of the roof of petitioner’s warehouse.

In order to be entitled to a theft loss deduction under section 165, petitioners must satisfy the following three requirements: (1) That they were the owners of the allegedly embezzled corporate employment tax funds, (2) that embezzlement actually occurred, and (3) that during the year for which the deduction is claimed, it could be ascertained with reasonable certainty that no recovery could be made.

To be entitled to an abandonment loss under section 165, a taxpayer must show: (1) An intention on the part of the owner to abandon the asset, and (2) an affirmative act of abandonment.

1995 increasing peti- tioner’s income and disallowing certain claimed deductions that respondent has not conceded be sustained? We hold that they should except to the extent provided herein. (2) Is petitioner entitled for 1995 to a theft loss under section 165? We hold that he is not. (3) Is petitioner liable for 1995 for the accuracy-related penalty under section 6662(a)? We hold that he is. FINDINGS OF FACT Some of the facts have been stipulated and are so found.4 Petitioner resided in Alaska

In any event, no theft loss under section 165 was claimed by either Amazona or petitioner for 1992.

to income-producing property before they sold it in 1997. Thus, they may not deduct depreciation or the operating expenses of the - 18 - residence under sections 162 and 167. Similarly, they may not deduct their loss on the sale of the house under section 165. E. Whether Petitioners Are Liable for Accuracy-Related Penalties for Negligence or Substantial Understatement of Income Tax 1. Background We next decide whether petitioners are liable for the accuracy-related penalty under section 6662(a)

at the time of the expenditure does not change the character of the investment; when a taxpayer abandons a project or fails to make an attempted investment, the preliminary expenditures that have been capitalized are then deductible as a loss under section 165. * * * As the First Circuit stated, ‘* * * expenditures made with the contemplation that they will result in the creation of a capital asset cannot be deducted as ordinary and necessary business expenses even though that expectation is sub

at the time of the expenditure does not change the character of the investment; when a taxpayer abandons a project or fails to make an attempted investment, the preliminary expenditures that have been capitalized are then deductible as a loss under section 165. * * * As the First Circuit stated, ‘* * * expenditures made with the contemplation that they will result in the creation of a capital asset cannot be deducted as ordinary and necessary business expenses even though that expectation is sub

Deductions Claimed For FYE May 31, 1992, petitioner claimed a worthless stock deduction of $7,374,438 (petitioner's adjusted basis in Günther's stock without regard to our discussion herein) under section 165 and a bad debt deduction of $6,564,124 (the intercom any account balance as of May 31, 1992) under section 166.

Section 165 provides, in general, for the deductibility of losses sustained by the taxpayer. Section 166 provides, in general, for the deductibility of debt which becomes worthless during the taxable year. Under both provisions, the amount of the deduction is determined by reference to the adjusted basis provided in section 1011 for determining the

Whether a theft within the meaning of section 165 has occurred “depends - 10 - upon the law of the jurisdiction wherein the particular loss occurred.” Monteleone v.

come was underreported in the amounts of $28,195, $22,695, and $74,013, respectively; (2) whether petitioners are entitled to a 1992 bad-debt deduction under section 166;1 (3) whether petitioners are entitled to a 1992 casualty loss deduction under section 165; (4) whether petitioners’ 1992 gain from the sale of Glenwood Wrecker Service was understated in the amount of $10,635; and (5) whether petitioners are liable for the accuracy-related penalty under section 6662(a) for the 1991, 1992, and 1

Casualty Loss Section 165 governs the tax treatment of losses and reads in relevant part as follows: SEC.

The issues for decision are whether petitioners have substantiated $5,704 in medical and dental expenses under section 213 and whether petitioners are entitled to deduct $38,829 in alleged casualty losses under section 165.1 1 All section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Whether advances that petitioner made to a related corporation are deductible as ordinary losses under section 165.2 1 Respondent concedes that petitioners’ losses from the advances at issue are long-term capital losses that are deductible under sec.

e id. Moreover, in the case of a personal casualty loss (i.e., a casualty loss of an individual of property not connected with a trade or business or a transaction entered into for profit), the amount of such loss otherwise properly calculated under sec. 165 and the regulations thereunder is deductible for the taxable year only to the extent such loss (assuming there are no personal casualty gains) exceeds 10 percent of the individual taxpayer’s adjusted gross income. See sec. 165(h)(2)(A). - 18

erty as their personal residence at the time of the earthquake. Respondent also questions whether the Military property was held for sale or rent in such a manner as to be considered business or income-producing property within the meaning of - 8 - section 165. Property that is used as a taxpayer’s residence may be converted to rental or other income-producing property within the meaning of section 165(a). See, e.g., section 1.165-9, Income Tax Regs. (concerning the sale of residential property)

Petitioners calculate their loss as follows: Fair market value prior to casualty $2,000,000 Fair market value after casualty -750,000 Gross casualty loss 1,250,000 Less insurance proceeds -767,000 Net casualty loss 483,000 (Casualty loss less than basis) Section 165 provides for the deduction of a loss and in pertinent part provides: - 4 - (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.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

Section 165 provides that individual taxpayers may deduct certain losses, including losses resulting from theft, sustained during the taxable year and not compensated by insurance or otherwise. See sec. 165(a), (c)(3). The amount of a theft loss is equal to the lesser of (1) the fair market value at the time of the theft, or (2) the adjusted cost b

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

Casualty losses under section 165 must be deducted for the taxable year in which the loss was sustained.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

mony at trial as to the reason he "sold" the notes (as well as the other securities at issue) is paraphrased in his brief, as follows: Throughout trial, Kanter candidly admitted that the purpose of the asset sales was to "establish" a loss for tax purposes, because of the traditional practice of Respondent's agents to routinely propose to disallow Section 165 or Section 166 deductions claimed in IRA's or Kanter's tax returns.

Loss on Sale Section 165 allows individual taxpayers to take a deduction for losses incurred in a "trade or business" and "any transaction entered into for profit".

A taxpayer is not entitled to claim a theft loss pursuant to section 165 with respect to lost or misplaced property.

The parties' dispute centers on section 165 and the regulations thereunder.

Section 165 allows a deduction for casualty losses sustained during the taxable year and not compensated for by insurance. Petitioner contends that he owned property located in Danville, Illinois, and that in 1993 such property was destroyed by a fire, resulting in an alleged $164,123 loss. Petitioner has failed, - 4 - however, to offer any eviden

Section 165--Theft Losses Petitioner next argues, in the alternative, that the expenses originally deducted as a section 1244 stock loss and the $30,550 paid for the release of the computer leases are deductible as a theft loss under section 165. Respondent disagrees, contending that petitioners have failed to show that Mr. Kelley committed any of

In order to be deductible under section 165, "a loss must be evidenced by closed and completed transactions, fixed by identifiable events, and * * * actually sustained during the taxable year." Sec.

to be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred. -5- heavy rains and flooding. Both parties agree that the damage to the road from the storms would qualify as a casualty loss under section 165. The parties also agree that the property at issue was used in a trade or business or held for the production of income, and therefore any loss realized would be subject to the limitations contained in section 1.165-7(b), Income Tax Regs.

* * * (2)(i) If a casualty or other event occurs which may result in a loss and, in the year of such casualty or event, there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, no portion of the loss with respect to which reimbursement may be received is sustained, for purposes of section 165, until it can be ascertained with reasonable certainty whether or not such reimbursement will be received.

The issues for our consideration are: (1) Whether petitioner is entitled to deduct legal fees or disgorgement payments as business expenses under section 162 or section 165; (2) whether petitioner’s deductions or losses resulted in a net operating loss (NOL); (3) if petitioner is not entitled to an NOL, whether he is entitled to the computational benefits of section 1341 with respect to the disgorgement payment; (4) whether petitioner is liable, in the alternative, for additions to tax for fraud

- 32 - Losses are deductible under section 165.12 Individuals are not permitted to deduct losses unless the losses are (1) incurred 12 Sec.

Section 165 provides that taxpayers may deduct certain losses, including losses resulting from casualty or theft, sustained during the taxable year and not compensated by insurance or otherwise. Sec. 165(a), (c)(3). A taxpayer may deduct a casualty loss in the year in which the loss is sustained and may deduct a theft loss in the year in which the

We also hold that petitioner is not entitled to claim a section 165 loss in 1990 on his reacquisition of the property.

Resser's stock option trades were not deductible under section 165 because Mr.

al gains and other application of capital losses during the period from 1979 to 1988, the capital loss carryover created would be capable of being carried into 1989 and offset the reported gain." Petitioners are unclear about whether they are seeking a bad debt deduction under the provisions of section 166, a loss deduction under the provisions of section 165, or both with respect to the Riviera and the Arizona Marine transactions.

Section 165 provides that taxpayers may deduct certain losses, including losses resulting from casualty or theft, sustained during the taxable year and not compensated by insurance or otherwise. Sec. 165(a), (c)(3). A taxpayer may deduct a casualty loss in the year in which the loss is sustained and may deduct a theft loss in the year in which the

Section 165 provides that individual taxpayers may deduct certain losses, including losses resulting from casualty or theft, sustained during the taxable year and not compensated by 6 Although petitioner reported a casualty loss in the amount of $6,500 on his return, his concession regarding Schedule C income has reduced the amount in dispute to $6

Theft Loss As a general rule, in computing taxable income, a taxpayer may deduct, pursuant to section 165(a), any loss sustained during the taxable year, including a loss arising from theft which is not compensated by insurance or otherwise, if the taxpayer meets - 18 - the requirements of section 165 and the regulations thereunder.

The issue for our consideration is whether Lakewood Associates is entitled to a loss deduction under section 165 in 1989 for a decrease in the value of real property alleged to have been caused by restrictions imposed on its ability to develop the property by Federal wetland regulations that were issued in that year.

he following defi- ciencies in, additions to, and accuracy-related penalty on petitioner's Federal income tax: - 2 - Additions to Tax Accuracy-Related Penalty Section Section Year Deficiency 6651(a)(1)1 6662(a) 1989 $4,398 $1,100 -- 1990 8,656 2,164 $1,731 The issue remaining for decision is whether petitioner is entitled for 1990 to deduct under section 165 a theft loss in the amount of $173,000.

Section 165 provides as follows: 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-- * *

However, if in the year the taxpayer discovers the loss there is a claim for reimbursement for which there is a reasonable prospect of recovery, "no portion of the loss with respect to which reimbursement may be received is sustained, for purposes of section 165, until the taxable year in which it can be ascertained with reasonable certainty whether or not such reimbursement will be received".

The loss from the transaction is not within the categories of losses allowed by section 165, or any other provision of the Internal Revenue Code.

Thus, the basis for determining a loss under section 165 for an automobile converted from personal to business use is the lesser of cost or fair market value.

ents that he made to the Hollywood, Florida, police department as a charitable contribution. We hold he may not. 2. Whether petitioner may deduct those payments as an expense under section 212 or a portion of these payments as a casualty loss under section 165. We hold he may not. 3. Whether petitioner is entitled to a bad debt deduction with respect to two "loans". We hold he is not. 4. Whether petitioner is liable for an addition to his 1987 tax under section 6651(a)(1). We hold he is. Unless

The issues for decision are whether petitioner is entitled to deduct losses in 1979 pursuant to section 165 for the expropriation of stock by the Iranian government in 1979, or alternatively as worthless securities under section 165(g), both of which issues turn essentially upon the existence of a reasonable prospect of recovery as of December 31, 1979.

im of right doctrine, we must next address whether Norwich’s deduction for 2014 should be respected. Norwich argues that the expenditure was an ordinary and necessary business expense under section 162, or in the alternative, a deductible loss under section 165. Norwich also argues that the entire amount of the error was deductible. 21 [*21] The Commissioner argues it was not a deductible expense or loss; and if it was, the deduction should be allowed only for the year of economic performance (i

eedom First) gave rise to a trade or business operating loss in 2017 in the amount of the funding made through the end of 2017. They contend that the Indiana payments are deductible as a business loss under section 165(a) and (c)(1), which provides: 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

m to a higher deduction. 8 [*8] OPERATED A TRADE OR BUSINESS-FINANCIAL ADVISING AND SALE OF FINANCIAL PRODUCTS- THAT GENERATED THE ACCOUNT BALANCE, THEN IT DEDUCTS ON THIS RETURN THE RESULTING LOSS OF ITS ACCOUNT BALANCE UNDER INTERNAL REVENUE CODE §165. Because HCM reported $6,547 of gross income for 2016, it reported a net loss of $849,335. Mr. Hampton included that loss in his calculation of Schedule E income on his 2016 Form 1040. See I.R.C. § 1366(a) (generally providing that an S corporati

The casualty and theft loss provision under section 165 is not “designed to take care of all losses that the economic world may bestow on its inhabitants.” Friedman v.

The taxpayer also claimed a section 165 loss of $273,417 on Schedule C, Profit or Loss From Business, that the Commissioner disallowed, attributed to the forfeiture.

2019-16, at *19 (describing this Court’s longstanding interpretation that the catchall category in the phrase “fire, storm, shipwreck, or other casualty” in section 165 “must mean something like the specific terms that precede it”), aff’d, 851 F.

Schedule A casualty loss deduction for 2014 Section 165 allows a taxpayer a deduction for casualty losses incurred during the year that are not compensated by insurance or otherwise.

Regulations under section 165 provide that a loss is treated as sustained during the taxable year in which the loss occurs as evidenced by a closed and completed transaction and fixed by identifiable events occurring in such taxable year.

at 652; see also Middle Atl.

A deduction for property forfeited, if allowed, falls under section 165 and not under section 162.

In the alternative petitioners contend that they are entitled, un- der section 165, to loss deductions that completely offset the income de- termined in the notice of deficiency.

See § 1.1502-80(c).[5] Section 1.1502-19(c)(1)(iii)(A) generally provides that a share of subsidiary stock will be treated as worthless when substantially all the subsidiary’s assets are treated as disposed of, abandoned, or destroyed for federal tax purposes.

It is now codified in California Civil Code section 3344.1.34 Since the common-law right still doesn’t survive death, see Comedy III Prods., 21 P.3d at 799; 6A Romualdo P. Eclavea et al., California Jurisprudence 3d, Assault and Other Willful Torts, sec. 165 (West 2021), it has little effect on this case. The dispute between the Estate and the Commissioner about the value of Jackson’s ROP is in part a dispute about the value of the Estate’s rights under this California statute. We need to give i

The relevant passage (much of which they omit from their brief) reads as follows: Section 280B of the Code does not disallow casualty losses al- lowable under section 165, but it does apply to amounts expended for the demolition of a structure damaged or destroyed by casualty, and to any loss sustained on account of such a demolition.

- 10 - Section 261, in part IX of subchapter B of chapter 1 of the Code, provides that “no deduction shall in any case be allowed in respect of the items specified in this part.” Section 280E is in part IX.

- 10 - Section 261, in part IX of subchapter B of chapter 1 of the Code, provides that “no deduction shall in any case be allowed in respect of the items specified in this part.” Section 280E is in part IX.

- 10 - Section 261, in part IX of subchapter B of chapter 1 of the Code, provides that “no deduction shall in any case be allowed in respect of the items specified in this part.” Section 280E is in part IX.

The issues for decision are whether advance payments ofpremium assistance tax credits (APTC) were made on behalf ofpetitioner under section 36B, Refundable Credit for Coverage Under a SERVED Nov 18 2019 - 2 - [*2] Qualified Health Plan, and whetherpetitioner is entitled to deduct a $2,798 alleged casualty loss under section 165.¹ FINDINGS OF FACT Some ofthe facts have been stipulated and are so found.

House due to the flooded basement. She noted that the fear offuture flooding may have caused an immediate adverse buyer reaction. This Court has traditionally held that physical damage to property is a prerequisite to deducting a casualty loss under section 165. See, e.g., Squirt Co. v. 2¹As stated supra p. 8, the record does not reflect the description or value of the property held in the Yote Trust. Given that petitioner originally purchased the property in 1998 for $9,250,000, see supra p. 7,

1990) (allowing loss deduction under section 165 for restitution payment where the taxpayer in a prior year "was taxed - 20 - [*20] upon his receipt ofthe * * * [embezzled funds]"), rev'g and remanding 93 T.C.

Section 165 Section 165(a) allows a deduction for any loss sustained during the taxable year that is not compensated for by insurance or otherwise. However, for losses not arising from a business, casualty, or theft, section 165(c)(2) limits the deduction in the case ofan individual to losses incurred in any transaction entered into for profit. A l

Section 261, in part IX of subchapter B ofchapter 1 ofthe Code, provides that "no deduction shall in any case be allowed in respect ofthe items specified in this part." Section 280E is in part IX.

fhis having abandoned the claim, such as the execution ofa release." M The parties agree that petitioners suffered a theft at the Fontana property during 2010. They disagree, however, as to whether the theft entitles petitioners to a deduction under section 165. For at least three reasons, we conclude that peti- tioners are not so entitled. First, petitioners did not offer a "competent appraisal" ofthe stolen proper- ty, see sec. 1.165-7(a)(2)(i), Income Tax Regs., and they otherwise failed to e

In the attached letter, petitioners also asserted that they were entitled to a "business loss" deduction under section 165 for 2010 because that was the year in which the "taxpayerbecame aware, for the first time, ofthe substantial losses incurred because tax professionals, that prepared taxpayer's returns, did not reduce stock option income by stock option basis." The letter included the following, which it characterized as a calculation ofthe claimed loss

In the attached letter, petitioners also asserted that they were entitled to a "business loss" deduction under section 165 for 2010 because that was the year in which the "taxpayerbecame aware, for the first time, ofthe substantial losses incurred because tax professionals, that prepared taxpayer's returns, did not reduce stock option income by stock option basis." The letter included the following, which it characterized as a calculation ofthe claimed loss

Petitioners argue that because the Code generally provides for deduction of losses under section 165, we should allow them to offset gains with losses before applying section 1291 as an exception to the literal application ofsection 1291.

1.165-7(b)(1), Income Tax Regs. Accordingly, to substantiate a casualty loss deduction, petitioners must prove, among other things, the adjusted basis and the fair market value ofthe property immediatelybefore and after each casualty. See Millsap v. Commissioner, 46 T.C. 751, 759-760 (1966), a[d, 387 F.2d 420 (8th Cir. 1968). -67- [

OPINION Respondent contends that petitioners are not entitled to deduct the 2009 loss upon the dissolution ofVentures because the RACR structure lacked economic substance, or in the alternative, the loss deduction did not meet the section 165 requirements for a bona fide loss incurred in a trade or business or a transaction entered into for profit.

with their return. Before filing that return, Mr. McNeill called EY to discuss additional required information on the Form 8886. That form requested information on persons who 9In October 2002 the Secretary first introduced regulations in regard to sec. 165 loss transactions as a reportable transaction. Sec. 1.6011-4T, Temporary Income Tax Regs., 67 Fed. Reg. 64799, 64802 (Oct. 22, 2002). The October 2002 temporary regulations were essentially adopted in their entirety (subject to minor changes

1.165-7(b)(1), Income Tax Regs. Accordingly, to substantiate a casualty loss deduction, petitioners must prove, among other things, the adjusted basis and the fair market value ofthe property immediatelybefore and after each casualty. See Millsap v. Commissioner, 46 T.C. 751, 759-760 (1966), a[d, 387 F.2d 420 (8th Cir. 1968). -67- [

Cir. 1962); Cochrane v. Commissioner, 23 B.T.A. 202, 208 (1931). 48Chaganti v. Commissioner, T.C. Memo. 2013-285, at *4, *8. 4°Chaganti v. Commissioner, at *12-*13. - 25 - [*25] Chaganti now argues that he should be able to deduct the payment under section 165. Under 28 U.S.C. sec. 1927, ifan attorney "multiplies the proceedings in any case unreasonably and vexatiously", then a court may require that attorney to pay the excess costs, expenses, and attorney's fees ofanother party. The U.S. Court

C-106804 is a section 197 intangible that must be amortized over a 15-yearperiod.5 However, they disagree as to whether petitioners suffered passthrough losses under section 165 in tax year 2009 when the contract lapsed on either June 27 or December 27, 2009, and was not amended until June 8, 2010.

C-106804 is a section 197 intangible that must be amortized over a 15-yearperiod.5 However, they disagree as to whether petitioners suffered passthrough losses under section 165 in tax year 2009 when the contract lapsed on either June 27 or December 27, 2009, and was not amended until June 8, 2010.

either capital contributions or loans to the corporation and are deductible, ifat all, only by the corporation."¹ª B. Individual Loss Deduction In their briefs Mr. Espaillat and Ms. Lizardo argue they are entitled to an ordinary loss deduction under section 165. Section 165(a) permits a deduction for uncompensated losses during a given tax year. As relevant to the present case, ¹7Craft v. Commissioner, T.C. Memo. 2005-197 (citing Deputy v. du Pont, 308 U.S. at 494, Noland v. Commissioner, 269 F.

ifthere exists at that time a reasonable prospect ofrecovery on a claim for reimbursement. The settlement, the adjudication, or the abandonment ofthe claim ordinarily constitutes the event sufficient to render the loss "sustained" with the meaning ofsection 165. Hudock v. Commissioner, 65 T.C. 351, 360 (1975). Petitioner's claim for reimbursement from the fire was not resolved in 2012. In fact, at the time oftrial in early 2015, petitioner was involved in the litigation seeking reimbursement for

It warned that purported losses from transactions implementing the strategy "do not represent bona fide losses reflecting actual economic consequences as required for purposes of § 165." With clear reference to elements ofFXIS, it warned that losses from "arrangements designed to produce noneconomic tax losses by artificially overstating basis in partnership interests[] are not allowable as deductions for federal income tax purposes." It added: "Appropriate penalties may be imposed on participan

Consequently, the Redisches are not entitled to deductions under section 212 or a loss deduction under section 165 relating to the Porto Mar property.

A section 165 loss for abandonment requires both an intent to abandon the asset and an affirmative act ofabandonment. Citron v. Commissioner, 97 T.C. 200, 208-209 (1991); Equity Planning Corp. v. Commissioner, T.C. Memo. 1983- 57. Mere nonuse alone is not sufficient to accomplish abandonment. See Zurn v. Commissioner, T.C. Memo. 1996-386. A section 1

It warned that purported losses from transactions implementing the strategy "do not represent bona fide losses reflecting actual economic consequences as required for purposes of § 165." With clear reference to elements ofFXIS, it warned that losses from "arrangements designed to produce noneconomic tax losses by artificially overstating basis in partnership interests[] are not allowable as deductions for federal income tax purposes." It added: "Appropriate penalties may be imposed on participan

The amount ofthe casualty loss allowed under section 165 is the lesser of: (1) the fair market value ofthe property immediately before the casualty reduced by the fair market value ofthe property immediately after the casualty or (2)"[t]he amount ofthe adjusted basis prescribed" in section 1.1011-1, Income Tax Regs., "for determining the loss from the sale or other disposition ofthe property

1.165-8(d), Income Tax Regs. But at the administrative level repondent did not considerwhether the theft loss constituted exceptional circumstances--eventhough petitioners requested reliefon public policy and equity grounds. The administrative record indicates that respondent did not consider those grounds but focused solely on econo

7491(a); see also Higbee v.

Thus, he is not entitled to claim a section 165 deduction in connection with losses incurred on Mrs.

However, section 165(f) provides that a loss from the sale or exchange ofa capital - 7 - asset is allowed only to the extent allowed under sections 1211 and 1212.6 Section 1221 defines a capital asset as any property held by the taxpayer, whether or not connected with his or her trade or business.

- 29 - [*29] "Theft" for purposes ofsection 165 is a word ofgeneral and broad meaning that includes any criminal appropriation ofanother's property, including theft by swindling, false pretenses, and other forms ofguile.

- 29 - [*29] "Theft" for purposes ofsection 165 is a word ofgeneral and broad meaning that includes any criminal appropriation ofanother's property, including theft by swindling, false pretenses, and other forms ofguile.

The issues for decision are whether petitioner is: (1) entitled to a section 165 casualty loss deduction; and (2) liable for a section 6662(a) accuracy-related penalty.

243 F.3d 1212, 1217 (10th Cir. 2001), affg. Leema Enters., Inc. v. Commissioner, T.C. Memo. 1999-18. Accordingly, we do not address the parties' arguments regarding the merits of "Respondent also argues that petitioners' losses are disallowed under sec. 165 because they were not_incurred in a transaction entered into for profit and that they are limited by the at-risk rules in sec. 465. We need not reach these arguments because of our other holdings. -28- petitioners' treatment of each step wit

142(a).6 The term "theft" under section 165 is a word ofgeneral and broad meaning that includes any criminal appropriation ofanother's property, including theft by swindling, false pretenses, and other forms ofguile.

We reiterate that petitioner was thoroughly advised about the possible need to give testimony, call witnesses, and present documents when this case was called for trial. Although given the opportunity, he chose to rely entirely on the documents offered to the Court. On the basis ofthe records offered, it does not appear that petitioner wa

investments to which the taxpayers referred did not happen. But, more importantly, we held that even ifthe intended real estate investments had occurred, 2iRespondent also asserts that petitioners' claimed loss deductions should be disallowed under sec. 165 because the losses were not incurred in a transaction entered into for profit and hence deductibility ofthe losses is limited by the at-risk rules ofsec. 465. We need not, and do not, consider these arguments because of our other holdings se

Taxpayers bear the burden ofproving both the occurrence ofa theft within the meaning ofsection 165 and the amount ofthe loss.

acks economic substance " We agree with respondent that the CARDS transaction lacked economic · substance. -A taxpayermay not deduct losses resulting from a transaction that "Respondent also argues that petitioner's claimed loss is disallowed under sec. 165 because it was not incurred in a transaction entered into for profit and that it is limited by the at-risk rules in sec. 465. We need not reach these arguments because ofour other holdings. -16- lacks economic substance, even ifthat transacti

a e Section 165 a) permits a deduction'against ordinary income for "any loss suutairied durinc the taxables year and not compensated for by insurance r otherwise.". T.For individuals, the deductiion is lim:.ted to: (1) Losses incurred in a trade or - business; (2) losses incurred in any transaction entered into for profit though not connected to at tra

n and sale of fuel derived from nonconventional sources for 2004 and 2005, respectively; (2) whether petitioners can deduct payments of $4,691 and $5,061 made in 2005 and 2006, respectively, as expenses of a trade or business under section 162 or as investment expenses under section 212; and (3) whether petitioners can deduct as theft losses under section 165 for 2004 or 2005 the payments made to Gas Recovery Partners 2GP in 2005 and 2006.

objective of making a profit, they are not entitled to deduct any amounts invested in the partnership as losses under Section 165(c) (2) if the partnership transactions are not entered into for profit", but going on to contend that applicability of sec. 165(å) (2) is an "affected item" and beyond the subject matter jurisdiction of a TEFRA partnership-level proceeding). Even as uming arguendo that applying sec. 165(c) (2) to limit a loss claimed on liquidating a partnership interest is an "affec

The issues for determination are: (I) Whether petitioner is entitled to a $5, 000 deduction under section 217 for moving expenses allegedly incurred in 2005;1 (2) whether petitioner is entitled to a $36, 250 deduction under section 165 for a casualty loss allegedly sustained in .

227, 247,.which became section 165 in 1928, Revenue Act o.f 1928, ch.

n 165 in 1928, Revenue Act of 1928, ch. 852, sec. 165, 45 Stat. 791, 839. Schwab and Kleinman point out that the committee reports for both the 1928 and 1932 Acts don’t address taxing the stated value of an insurance policy. See S. Rep. No. 72-665, sec. 165 (1932), reprinted in 1939 — 1 C.B. (Part 2) 496, 520; H.R. Rep. No. 70— 2, sec. 165 (1927), reprinted in 1939-1 C.B. (Part 2) 384, 398-99. Finding no esoteric meaning in the legislative history, Schwab and Kleinman point us to the dictionary,

) 16 - Section 165 and 166 Theft Loss and Bad Debt Deductions Section 165 (a) provides that there shall be allowed ..as, a kkdeduction any loss sustained during the taxable .

Section 165(g)(1) and (2)(A) .provides that a taxpaye r realizes a capital toss when stock that is a capital asset becomes worthless .

2007), we held that „petitioners were not entitled to deduct the NOL carryforward as a loss under section 165 and that Ms .

did not enter into the option: positions - and Tigers Eye did not, purchase the foreign currency or stock with a profit motive for purposes of-section 165(c ) .( 2)" ..

of the purported partnership] interest . 5 . It is determined that neither AD FXITrading 2000 Fund, LLCI nor its purported partners entered into the option(s) positions or purchase the foreign currency or stock with-a.. profit motive for purposes of § 165 (c)(2) . 6 . It is determined that, even if the foreign currency option( s) are treated as having beep contributed to AD FXi1 Trading 2000 Fund, LLC, the amount treated as contributedl!by, the partners under section 722 of the Internal Revenue

ncurred in their attempt to recover the allegedly stolen funds . On brief respondent asserts that "there is no evidence in the record as to the amount of the funds withdrawn or that a theft occurred . " The limitation on deductions for losses under .section 165 . generally allows an individual a deduction for a loss arising from theft . See sec . 165(c)(3) . A loss that arises from theft is treated as sustained during the taxable year in which the taxpayer discovers such loss . See sec . 165(e)

, including that : (1) The CARDS transaction lacked economic substance, was entered into primarily for tax-avoidance purposes, and was prearranged or predetermined ; (2) application of the substance-over-form or step- transaction doctrine would disallow the loss ; or (3) neither Country Pine Finance nor any member was entitled to a deduction under section 165, 465, or 988 .

Under the'general rule of section 165' 1(h), a casualty loss .may .be deducted only to the extent it exceeds $100 and 10 perce ht 1 of the taxpayer's adjusted gross income (after applying the $101 floor) .

Section 165 Theft Loss Section 165 generally permits a taxpayer to deduct uncompensated losses resulting from theft in the year in which the taxpayer discovers the loss . Sec . 165(a), (c), (e) . To qualify for a theft loss deduction, a taxpayer must prove : (1)- The occurrence of a theft under the law of the jurisdiction in which the claimed loss

Theft Loss Deduction Section 165 generally allows a deduction for uncompensated losses resulting from theft for the year in which the taxpayer discovers the loss.

Section 165(d) limits the loss deduction of section 165(a), providing : "Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions ." Section 165 permits deductions for gambling losses for a taxpayer who is not in the business of gambling, see Commissioner v .

In the case of an item held for personal use, the amount deductible is governed by section 1 .165-7(b)(1), Income Tax Regs ., which provides that the amount of the loss to be taken - 31 - into account for purposes of section 165(a ) shall be the lesser of : (1) The amount which is equal to the fair market value of the property immediately before the casualty reduced by the fair market value of the property immediately after the casualty, or (2) the amount of the adjusted basis for determining th

Applicable Law Section 165 (a) provides the general rule that there shall be allowed as a deduction any loss sustained during the taxable year and not compensated by insurance or otherwise .

As a general rule, under section 165 a taxpayer may deduct any loss sustained during a taxable year, including a loss from theft which is not compensated by insurance or otherwise, if the taxpayer meets the requirements of section 165 and related regulations .

Section 165(d) limits the loss deduction of section 165(a), providing : "Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions ." Section 165 permits a deduction.

784 (1977) (stating that in using a valuation method to compute a loss for purposes of section 165, the value of a person's "loss of time" cannot be included in the computation) ; Wilhelm v .

Casualty Loss Section 165 (a) allows a deduction for any loss sustained during the taxable year and not compensated for by insurance or otherwise .

You have also failed to establish that, even if loss was sustained and would other- wise be deductible, any deduction relating to the loss is not specifically limited or disallowed by any provision of the Internal Revenue Code, in- cluding without limitation §§165, 183, 212, 704(d), 1366(d), or 465 .

You have also failed to establish that, even if loss was sustained and would otherwise be deducible, any deduction relating to the loss is not specifically limited or disallowed by any provision of the Internal Revenue Code, including without limitation §§ 165, 212, 704(d), or 465 .

You have also failed to establish that, even if loss was sustained and would otherwise be deductible, any deduction relating to the loss is not specifically limited or disallowed by any provision of the Internal Revenue Code, including without limitation §§165, 183, 212, 704(d), 1366(d), or 465.

The issue is whether petitioner is entitled to a casualty loss deduction under section 165 in an amount greater than $9,448 allowed by respondent.2 Petitioner resided in Lorton, Virginia, at time the petition was filed.

ital gain . * * * B . We have adjusted your flow through net capital loss from the SIF LLC (Partnership) . * * * * C . Alternatively, you have failed to establish that your losses meet the requirements of the IRC, including, but not limited to, IRC §§ 165 and 465 . l .b . PER RETURN PER EXAM ADJUSTMENT Itemized 406,003 130,284 275,719 Deductions We have adjusted your itemized deductions * * * . Overall Limitation : An individual whose adjusted gross income exceeds a threshold amount must reduce

Theft Loss Deductions Section 165 grants a taxpayer a deduction of any loss sustained during a taxable year as a result of theft .

The allowable deductions are: (1) Casualty and theft losses under section 165, (2) charitable contributions under section 170, and (3) personal exemptions under section 151.

re: (1) Whether petitioners are entitled to a business expense deduction under section 162(a) for expenditures made on behalf of Intercontinental Trading Group, Inc.; (2) in the alternative, whether petitioners are entitled to a loss deduction under section 165 or bad debt deduction under section 166 relating to those expenditures; and (3) whether 1 Petitioners claimed a deduction of $30,067.59 on a Schedule C, Profit or Loss From Business, attached to their jointly filed Form 1040, U.S.

ny. 10This general rule does not apply to those expenses that are deductible regardless of any connection with a trade or business, such as mortgage interest on the residence under sec. 163, real estate taxes under sec. 164, or casualty losses under sec. 165. Sec. 280A(b). - 11 - of the number of days the unit is rented at fair rental value, no deduction is allowed. Sec. 280A(a), (d)(1). Nor may taxpayers deduct expenses for the portion of a residence not “exclusively” used for business purposes

If a taxpayer is in the business as a trader in securities and made a mark-to-market election with respect to sales of securities held in connection with his business, his net loss from that business would be an ordinary loss, deductible in full under section 165; if the mark-to-market election is not made, the net loss would be a capital loss deductible only to the extent of any capital gains plus $3,000.

under section 104(a); (2) whether petitioner is entitled to an additional charitable contributions deduction pursuant to section 170 that was not otherwise conceded by respondent; (3) whether petitioner is entitled to a casualty loss deduction under section 165 stemming from a 1997 automobile accident; (4) whether petitioner is entitled to deduct, under section 162 or 183, various expenses related to his insurance activity; and (5) whether petitioner is liable for additions to tax for failure to

not be respected for tax purposes. Alternatively, respondent contends that petitioner’s claimed rental expenses and note disposition losses are neither ordinary and necessary business expenses under section 162 nor otherwise deductible losses under section 165. - 54 - A. Did the Underlying Transactions Have Economic Substance? 1. Generally If a transaction is found not to have economic substance, the form of the transaction may be disregarded in determining the proper tax treatment to be accord

Whether the Expropriation Loss Occurred in 1979 or 1986 To be a deductible loss under section 165, the transaction must be closed, completed, and fixed by identifiable events in the taxable year.

Whether the Expropriation Loss Occurred in 1979 or 1986 To be a deductible loss under section 165, the transaction must be closed, completed, and fixed by identifiable events in the taxable year.

mony. This general rule does not apply to those expenses that are deductible regardless of any connection with a trade or business, such as mortgage interest on the residence under sec. 163, real estate taxes under sec. 164, or casualty losses under sec. 165. Sec. 280A(b). Petitioners vaguely assert that she stayed on a “single occasion.” Nor have petitioners carried their burden to prove that they rented the unit for at least 15 days in 1997. See sec. 280A(g); Stoddard v. Commissioner, T.C. Mem

Discussion Because petitioners failed to meet the requirements of section 7491(a)(2), the burden of proof does not shift to respondent in this case.1 Losses may be deductible under section 165 to the extent "not compensated for by insurance or otherwise." In the case of an individual, section 165(c)(3) allows a taxpayer to claim as a deduction any loss from theft or casualty sustained during the taxable year.

(2) because petitioner’s valuation of its health insurance group contracts did not constitute a contract-by- contract valuation, did not establish a credible discrete value for each contract, and is otherwise deficient, claimed loss deductions under sec. 165, I.R.C., in the cumulative total amount of $3,973,023 relating to petitioner’s 376 health insurance group contracts that were terminated in 1994 are not allowable. - 2 - Peter H. Winslow and Samuel A. Mitchell, for petitioner. Ruth M. Spadar

f by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165. (c) Definitions.--For purposes of this section-- (1) Start-up expenditures.--The term “start- up expenditure” means any amount-- - 13 - (A) paid or incurred in connection with-- (i) investigating the creation or acquisition of an active

The issue for decision involves the allowability of $3,973,023 (hereinafter rounded to $4 million) in cumulative total loss deductions claimed under section 165 relating to petitioner’s health insurance group contracts (group contracts).

- 9 - deductible under section 162 and/or section 165.5 Respondent argues that Turtle Performance was not a trade or business during any of the years in issue because petitioner did not engage in that activity with the requisite profit objective.

If the right is not exercised, the taxpayer may be entitled to a loss deduction under section 165 of the Code when the right expires.

Any theft loss would be covered under section 165, whereas any business bad debt would be covered under section 166.

Discussion1 The Deduction of Federal Withholding Tax Section 62(a)(9) allows deductions under section 165 from gross income for amounts "forfeited to a bank, mutual savings bank, savings and loan association, building and loan association, cooperative bank or homestead association as a penalty for premature withdrawal of funds".

If the right is not exercised, the taxpayer may be entitled to a loss deduction under section 165 of the Code when the right expires.

50 (deduction allowable under section 165 with respect to embezzled funds in the year of repayment).

To be entitled to an abandonment loss under section 165, a taxpayer must show: (1) An intention on the part of the owner to abandon the asset, and (2) an affirmative act of abandonment.

pany. Following the final settlement, petitioners amended their 1991 joint income tax return in order to claim a $37,852 casualty loss and seek a $5,821 refund. In support of their refund claim, petitioners’ relied on the casualty loss provisions of section 165. Petitioners’ 1991 tax return was examined by the Internal Revenue Service. The sole focus of the examination was the $130,000 payment received during 1991. Petitioners’ representative, an enrolled agent, argued that the cost to repair th

rief the issue as to the allowability of petitioners’ claimed bad debt deductions relating to the automobile loans under the bad debt provisions of sec. 166. No claim is made that the claimed deductions should be allowed under the loss provisions of sec. 165. - 9 - The fact that some payments on debts become delinquent, standing alone, does not establish the worthlessness or uncollectibility of the debts or of any portion thereof. Milenbach v. Commissioner, 106 T.C. 184, 204-205 (1996). A taxpay

- 2 - The issues for decision are whether petitioners, under section 165, are entitled to a deduction in 1996 for either an ordinary abandonment loss or a theft loss in the amount of $25,800.

In the alternative, petitioners contend that they are entitled to deduct these payments as section 165 losses, or as section 162(a) ordinary and necessary business expenses.

Under section 165, taxpayers may take deductions for losses sustained in sales or exchanges of capital assets and for worthless securities. See sec. 165(a), (f), and (g). Such losses and deductions are limited, however, to the extent prescribed by the Code. Taxpayers other than corporations may offset capital gains by capital losses. See sec. 1211(b). Ca

Section 165 allows a deduction in the case of an individual for (1) a loss incurred in a trade or business, (2) a loss incurred in any transaction entered into for profit, even though not connected with a trade or business, and (3) a loss of prop- erty not connected with a trade or business or a transaction entered into for profit if such loss aris

Petitioners filed timely petitions contesting respondent’s determination and alleging, in the alternative, that the Schedule C losses were deductible under section 165, 166, or 1244.

Individual Income Tax Return for 1982, petitioners deducted a loss from their Pharmacare investment and loans as a section 165 theft loss.

Petitioners filed timely petitions contesting respondent’s determination and alleging, in the alternative, that the Schedule C losses were deductible under section 165, 166, or 1244.

at the time of the expenditure does not change the character of the investment; when a taxpayer abandons a project or fails to make an attempted investment, the preliminary expenditures that have been capitalized are then deductible as a loss under section 165. * * * As the First Circuit stated, "... expenditures made with the contemplation that they will result in the creation of a capital asset cannot be deducted as ordinary and necessary business expenses even though that expectation is subse

In general, in the case of theft of inventory, a taxpayer may either account for the loss as a reduction to closing inventory and a corresponding increase to cost of goods sold, or claim a deduction under section 165 and make a corresponding decrease to opening inventory or purchases.

r to the date of the enactment of the Omnibus Budget Reconciliation Act of year to acquire various aircraft parts. On brief, petitioners do not advance that argument. We therefore presume that petitioners have abandoned their position at trial under sec. 165. See Rybak v. Commissioner, 91 T.C. 524, 566 n.19 (1988). - 7 - 1990, Pub. L. 101-508, sec. 11812(a), 104 Stat. 1388, 1388-534 (former section 167(m)). Former section 167(m) permitted depre- ciation deductions to be determined with respect t

Two laws permit the deduction of straddle losses, Code section 165 and section 108 of the Deficit Reduction Act of 1984 (DEFRA), as amended by the Tax Reform Act of 19 Even in the exceptional case, when investors reported appreciable economic earnings, they immediately terminated trading in those markets.

After concessions, the issues for decision are: (1) Whether Lakeview Automotive, Inc., an S corporation wholly owned by petitioner, is entitled to a deduction for a bad debt loss under section 166 or, in the alternative, a theft loss under section 165; (2) whether Lakeview Automotive, Inc., is entitled to a deduction for a claimed rental expense; (3) whether Lakeview Automotive, Inc., is entitled to a deduction for legal fees incurred in defending a suit brought by a former shareholder; (4) whet

he substance of the performance promised has been delivered before - 288 - the affected party gives notice of his intent to avoid the contract. See Ice v. Benedict Nuclear Pharms., Inc., 797 P.2d 757, 759 (Colo. Ct. App. 1990); 1 Restatement, supra sec. 165. Petitioners also contend that Messrs. Sims' and McWade's failure to disclose the Thompson and Cravens settlements before the trial of the test cases constitutes a breach of contract. The conditions and obligations underlying a contract may b

he substance of the performance promised has been delivered before - 288 - the affected party gives notice of his intent to avoid the contract. See Ice v. Benedict Nuclear Pharms., Inc., 797 P.2d 757, 759 (Colo. Ct. App. 1990); 1 Restatement, supra sec. 165. Petitioners also contend that Messrs. Sims' and McWade's failure to disclose the Thompson and Cravens settlements before the trial of the test cases constitutes a breach of contract. The conditions and obligations underlying a contract may b

Two laws permit the deduction of straddle losses, Code section 165 and section 108 of the Deficit Reduction Act of 1984 (DEFRA), as amended by the Tax Reform Act of 19 Even in the exceptional case, when investors reported appreciable economic earnings, they immediately terminated trading in those markets.

Two laws permit the deduction of straddle losses, Code section 165 and section 108 of the Deficit Reduction Act of 1984 (DEFRA), as amended by the Tax Reform Act of 19 Even in the exceptional case, when investors reported appreciable economic earnings, they immediately terminated trading in those markets.

he substance of the performance promised has been delivered before - 288 - the affected party gives notice of his intent to avoid the contract. See Ice v. Benedict Nuclear Pharms., Inc., 797 P.2d 757, 759 (Colo. Ct. App. 1990); 1 Restatement, supra sec. 165. Petitioners also contend that Messrs. Sims' and McWade's failure to disclose the Thompson and Cravens settlements before the trial of the test cases constitutes a breach of contract. The conditions and obligations underlying a contract may b

he substance of the performance promised has been delivered before - 288 - the affected party gives notice of his intent to avoid the contract. See Ice v. Benedict Nuclear Pharms., Inc., 797 P.2d 757, 759 (Colo. Ct. App. 1990); 1 Restatement, supra sec. 165. Petitioners also contend that Messrs. Sims' and McWade's failure to disclose the Thompson and Cravens settlements before the trial of the test cases constitutes a breach of contract. The conditions and obligations underlying a contract may b

he substance of the performance promised has been delivered before - 288 - the affected party gives notice of his intent to avoid the contract. See Ice v. Benedict Nuclear Pharms., Inc., 797 P.2d 757, 759 (Colo. Ct. App. 1990); 1 Restatement, supra sec. 165. Petitioners also contend that Messrs. Sims' and McWade's failure to disclose the Thompson and Cravens settlements before the trial of the test cases constitutes a breach of contract. The conditions and obligations underlying a contract may b

Further, other than petitioners' claim for loss deductions under section 165 with respect tc the amount of cash invested in White Rim, petitioners agree to be bound by Krause with respect to the disallowance of tax deductions relating to White Rim's claimed losses, interest expense deductions, and investment credit.

Two laws permit the.deduction of straddle losses, Code section 165 and section 108 of the Deficit Reduction Act of 1984 (DEFRA) , as amended by the Tax Reform Act of ¹8 Even in the exceptional case, when investors reported appreciable economic earnings, they immediately terminated trading in those markets.

at the time of the expenditure does not change the character of the investment; when a taxpayer abandons a project or fails to make an attempted investment, the preliminary expenditures that have been capitalized are then deductible as a loss under section 165. * * * As the First Circuit stated, "... expenditures made with the contemplation that they will result in the creation of a capital asset cannot be deducted as ordinary and necessary business expenses even though that expectation is subse

Section 1.166-9(b), Income Tax Regs., further provides that neither section 163 nor section 165 will apply with respect to such a payment.

Section 165 allows as a deduction theft losses sustained during the year not compensated by insurance or otherwise. In general, whether or not a theft loss is incurred in a trade or business, the amount of the loss to be taken into account is the lesser of either (1) the fair market value of the property immediately before the theft, or (2) the adj

If so, both parties agree that section 165 entitles petitioner to an ordinary loss equal to its adjusted - 5 - basis in its USMP stock.

Allowance for Losses Sustained During the Taxable Year With limitations not here pertinent, section 165 "[allows] as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise." Sec.

s excludable from Cheyenne’s gross income.7 Petitioner has not shown that Cheyenne was entitled to receive the disaster payment by reason of having sustained any casualty loss for which it would have been entitled to a casualty loss deduction under section 165. As a small business corporation engaged in farming, Cheyenne in all likelihood had used the cash method of accounting. Secs. 447 and 448. As a result, it would have had no basis in the crops of a prior year in respect of which it was enti

gel v. Commissioner, T.C. Memo. 1992-570, affd. without published opinion 996 F.2d 1227 (9th Cir. 1993), in which the Court stated: The law is clear regarding a failure to realize anticipated future income. Such failure is not a loss contemplated by section 165. As the Supreme Court succinctly stated in Hort v. Commissioner, 313 U.S. 28, 32-33 (1941), "Nothing in section 23(e) [currently at section 165] indicates that Congress intended to allow petitioner to reduce ordinary income actually recei

In their opening brief, petitioners make an alternative argument that the partnerships are entitled to an abandonment loss under section 165 for 1987.

A taxpayer claiming a deduction under section 162 or 212 for an expense, or under section 165 for a loss, must have an "actual and honest profit objective" in order to avoid the disallowance of such deductions.

Section 165 generally provides a deduction for any loss sustained during the taxable year and not compensated by insurance or otherwise. Section 165(f), however, provides that losses from the sales of capital assets should be allowed only to the extent allowed under sections 1211 and 1212. Section 1221 defines capital assets as any property held by

oner's that neither had commenced nor was being conducted on a regular and continuous basis during the year at issue. Petitioners also claimed a $12,500 bad debt deduction for a debt that they reported as a 8(...continued) general loss provisions of sec. 165. Therefore, petitioners here cannot obtain any relief under sec. 165. Moreover, no identifiable event occurred to fix the amount of any loss so as to render it deductible under sec. 165. - 18 - debt arising out of a trade or business activit

sale of the Ruidoso property, with no offset of basis. Respondent concedes that sec. 874(a) allows petitioner to use the basis in the property to determine the amount of the gain or loss. Sec. 874(a) does, however, deny a deduction for a loss under sec. 165. - 4 - taxable years 1987 through 1991, his Federal income tax returns were due on June 15 of the year following the close of the taxable year. Sec. 6072(c). As of November 13, 1992, petitioner had not filed any Federal income tax returns fo

owable without regard to any connection with a trade or business include the deduction for: (1) Interest under sec. 163, subject to the sec. 163(h)(1) personal interest restriction, (2) real estate taxes under sec. 164, and (3) casualty losses under sec. 165. - 24 - Commissioner, T.C. Memo. 1994-60, affd. without published opinion 78 F.3d 594 (9th Cir. 1996). As a general rule, section 280F(d)(4) treats any computer or peripheral equipment as listed property. Sec. 280F(d)(4)(A)(iv). To claim exp

(i), Income Tax Regs., provides: If a casualty or other event occurs which may result in a loss and, in the year of such casualty or event, there exists a claim for reimbursement with respect to which there is a reasonable prospect of recovery, no portion of the loss with respect to which reimbursement may be received is sustained, for purposes of section 165, until it can be ascertained with reasonable certainty whether or not such reimbursement will be received.

(3) A loss under section 165-2(c), Income Tax Regs.

It is well established in case law that no deduction is allowed under section 165 or any other Code section for loss of potential income.

Section 165 allows as a deduction a theft loss sustained during the taxable year and not compensated for by insurance or otherwise. Sec. 165(a), (c)(3). Section 165(e) provides that the deduction for such loss shall be treated as sustained in the taxable year in which the taxpayer discovered the loss. Sec. 1.165-8(a)(2), Income Tax Regs. Petitioner

Respondent's counsel, during her opening statement at trial, conceded that a loss occurred, but she disputed: (1) The amount of the loss, (2) that the advances were loans, as opposed to contributions to Kenilworth's capital, and (3) that Kenilworth intended to repay the advances, to the extent they were loans. On brief, respondent prim

sale of the Ruidoso property, with no offset of basis. Respondent concedes that sec. 874(a) allows petitioner to use the basis in the property to determine the amount of the gain or loss. Sec. 874(a) does, however, deny a deduction for a loss under sec. 165. Wright H. Schickli coined the term “doomsday letter” to refer to the Internal Revenue Service notice described in sec. 1.874-l(b), Income Tax Regs., that cuts off or restricts a nonresident alien individual’s ability to claim deductions. Sc