Opinion ID: 577995
Heading Depth: 1
Heading Rank: 1

Heading: theft loss deduction

Text: 3 A taxpayer is entitled to deduct any loss sustained during the taxable year and not compensated for by insurance or otherwise. 26 U.S.C. § 165(a). In the case of theft, the loss is treated as [having been] sustained during the taxable year in which the taxpayer discovers such loss. 26 U.S.C. § 165(e). A qualification to this rule is that 4 [I]f in the year of discovery 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 the taxable year in which it can be ascertained with reasonable certainty whether or not such reimbursement will be received. 5 Treas.Reg. § 1.165-1(d)(3). Most importantly--and contrary to Taxpayer's vigorous assertion--it is the taxpayer who bears the burden of proving that a deductible loss was sustained within the meaning of 26 U.S.C. § 165(e) and Treas.Reg. § 1.165-1(d)(3). Citron v. C.I.R., 97 T.C. 200, 207 (1991) (citing Clapp v. C.I.R., 321 F.2d 12, 14 (9th Cir.1963)). 6 We reject Taxpayer's theft loss deduction argument for several reasons. First, the plausibility of Taxpayer's contention that he discovered his loss in 1983 is strained by his subsequent act of filing a return claiming a tax loss of $241,561 on a $60,000 investment. 1 Second, and even if it could be said that Taxpayer discovered his loss in 1983, he would still have to have shown that he had no reasonable prospect of later recovering that loss, either from Western Reserve or a third party. Cf. McCullough v. C.I.R., 60 T.C.M. (CCH) 1514, 1516 (1990) (A reasonable prospect of recovery exists when the taxpayer has bona fide claims for recoupment from third parties or otherwise.). This he did not do. 2 Third and finally, Taxpayer's act of suing Bob Strathern is inconsistent with the notion that Taxpayer could not have sought reimbursement from a third party. Cf. Dawn v. C.I.R., 675 F.2d 1077, 1078 (9th Cir.1982) (The fact that taxpayers filed a lawsuit to recover the deducted loss gives rise to an inference that they had such a claim.). 7 In light of the above, there was no error in the Tax Court's finding that Taxpayer failed to produce sufficient evidence to support his claim for a theft loss deduction in 1983. See Norgaard v. C.I.R., 939 F.2d 874, 877 (9th Cir.1991).