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Erkel and in favor of petitioner. Under the terms of that
default judgment, petitioner was to recover from Mr. Erkel
general damages (general damages) in the amount of $20,200 and
punitive damages (punitive damages) in the amount of $50,000.
Petitioner did not at any time recover from Mr. Erkel any
portion of the general damages award, nor did he recover any
portion of the punitive damages award.
In their 1991 return, petitioners reduced their gross income
in the amount of $50,000 by claiming a loss attributable to the
punitive damages that were awarded to, but not collected by,
petitioner during that year. Petitioners did not include in
their gross income for 1991 any portion of the $20,200 general
damages award or any portion of the $50,000 punitive damages
award.
In the notice of deficiency, respondent disallowed the
$50,000 loss that was claimed by petitioners in their 1991 return
on the following grounds: (1) Petitioners did not include any
portion of the $50,000 punitive damages award in their gross
income for Federal income tax purposes, and (2) petitioners
failed to establish that that award became worthless during 1991.
OPINION
Petitioners bear the burden of proving that respondent's
determinations are erroneous. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Deductions are strictly a matter of
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