- 29 -
the victimized taxpayer has failed to take the amount stolen into
income. Permitting a theft loss deduction in these circumstances
would amount to allowing a double deduction. United States v.
Kleifgen, 557 F.2d 1293, 1299 (9th Cir. 1977); cf. Alsop v.
Commissioner, 290 F.2d 726, 727 (2d Cir. 1961), affg. 34 T.C. 606
(1960).
In this case petitioners figured their taxable income by
totaling up their sales and then deducting from that total their
costs of goods sold and other expenses. When they excluded the
stolen $22,773 from their total sales but did not change their
cost of goods sold, they effectively lowered their reported
income by $22,773. Their action produced the same effect as if
they had included the $22,773 amount in sales (and thus in
income) and then been allowed a deduction of that amount as a
theft loss deduction. Here, having excluded the $22,773 from
total sales, they may not deduct the $22,773 as a theft loss. To
do so would be to obtain a second tax benefit for only one loss.4
4 Sec. 1.165-8(c), Income Tax Regs., provides that the
taxpayers are to determine the amount of a theft loss deduction
under the rules for deductibility of casualty losses. The
pertinent part of the latter regulations, sec. 1.165-7(b), Income
Tax Regs., provides that the amount deductible for such a loss is
the lesser of the difference between the fair market value of the
property before and after the theft, or the adjusted basis of the
property.
Petitioners are cash basis taxpayers. They have shown
neither that they actually received and took into income the
stolen money, nor that they paid income tax on the amount stolen
for 1991, or any other year. Thus, they did not acquire a basis
in the property. Apparently, however, they were required to
(continued...)
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011