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forward that loss to 1989. They argue that if a capital loss
were incurred in those years "which exceeded the current capital
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. In
their trial memorandum, petitioners cite section 166(a), which
allows a deduction for a debt that becomes worthless within a
taxable year. They also cite section 165(g), which allows a
deduction for a security which becomes worthless during a taxable
year. On brief after trial, petitioners argue "there is little
significance to whether the loss constituted a short-term capital
loss under � 166(d)(1)(B) IRC or a long term capital loss as
described under � 1201 et.seq. IRC." They cite no other code
sections throughout their brief and reply brief.
The separate statutory provisions regarding losses and bad
debts are mutually exclusive. Spring City Foundry Co. v.
Commissioner, 292 U.S. 182, 189 (1934). Therefore, if a loss has
been sustained, the taxpayer may not deduct it as a bad debt.
Moreover, deductions are not a matter of right but of legislative
grace. The burden is on the taxpayer to bring the case squarely
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