Timothy Demitri Brown - Page 8

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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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