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fact that Mr. Brown undertook to litigate his claim against Ms.
Lotts indicates that he had a reasonable prospect of recovery as
of the end of 1993. The fact that the lawsuit was not actually
filed until 1994 does not negate the inference that there was a
recoverable claim for reimbursement during 1993. Dawn v.
Commissioner, 675 F.2d 1077, 1078 (9th Cir. 1982), affg. T.C.
Memo. 1979-479; see National Home Prods., Inc. v. Commissioner,
71 T.C. 501, 525-526 (1979).
Moreover, even if Mr. Brown established that there was a
closed and completed transaction giving rise to a deductible
theft loss, he has failed to establish the fair market value of
the property stolen. The amount of a theft loss is equal to the
lesser of (1) the fair market value, or (2) the adjusted cost
basis of the property stolen. Sec. 1.165-7(b), 8(c), Income Tax
Regs. The regulations further require that the fair market value
be ascertained by competent appraisal. Sec. 1.165-7(a)(2),
Income Tax Regs. Therefore, we sustain respondent’s disallowance
of Mr. Brown’s claimed theft loss.4
Finally, we must determine whether Mr. Brown is liable for
the self-employment tax under section 1401. Section 1401(a)
imposes a tax on the self-employment income of every individual.
4Similar to Mr. Brown’s recovery of his deposit in 1994, Mr.
Brown reported the recovery of his vehicle in the amount of
$3,000 in 1995. Thus, we note that Mr. Brown overreported his
taxable income in 1995 and may be entitled to a refund for that
year.
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