of funds by employees of the Burke Insurance Agencies. Taxpayers bear the
burden of proving that they are entitled to the losses they claim. Burnet v.
Houston, 283 U.S. 223, 227 (1931).
Mr. Burke testified at trial that Ms. Romano and Evelyn Coleman,
employees of the Burke Insurance Agencies, embezzled funds from him. In
particular, Mr. Burke claims that these women would write checks payable to
him, endorse the checks in his name, and then keep the funds for themselves.
Both Ms. Romano and Ms. Coleman denied these accusations. Ms. Romano
testified that she would write and endorse checks in Mr. Burke's name only
when instructed to do so by Mr. Burke himself, and she would always provide
him with the funds she received.
As already explained, we believe that Mr. Burke's allegations are
nothing more than an attempt to conceal his diversion of funds for his own
personal use. Therefore, we sustain respondent's disallowance of any
embezzlement losses for the years in issue.
Schedule E Losses
Mr. Burke claimed Schedule E (Supplemental Income Schedule) losses of
$23,453, $141,418, and $37,348 for the taxable years 1985, 1986, and 1987,
respectively. Mr. Burke alleges that these losses were sustained by Ard Rhei,
his wholly owned S corporation. With the exception of a $3,200 deduction for
1985, respondent disallowed any deduction for these losses.
An S corporation is not normally subject to corporate income tax. Sec.
1363(a). Instead, shareholders include their pro rata share of the
corporation's income, losses, deductions, or credits on their individual tax
returns. Sec. 1366(a)(1). Shareholders are only entitled to claim losses and
deductions to the extent of their adjusted basis in the corporation's stock
and any indebtedness of the S corporation to the shareholder. Sec.
1366(d)(1).
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