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issued a promissory note to Rory. Consequently, the indebtedness
to Rory was not Bonnie's obligation at the time of her death.
Accordingly, petitioner has failed to carry its burden of
proof with respect to this issue, and it is not entitled to the
deduction.
V. Deduction for Theft
Section 2054 provides for a deduction from the gross estate
for losses arising from fires, storms, shipwrecks, or other
casualties, or from theft, when such losses are not compensated
for by insurance or otherwise. Only losses of the nature
described in section 2054 are deductible. Sec. 20.2054-1, Estate
Tax Regs.
Petitioner contends that the USM representative embezzled
its $300,000 investment and that, for purposes of section 2054, a
theft occurred. Respondent does not refute that the $300,000 was
embezzled but contends that petitioner has failed to prove that
$300,000 was invested by the estate in USM. We disagree.
Petitioner has established that it invested $300,000 in USM.
Moreover, it has established that the USM representative
embezzled the $300,000 from petitioner. As a result, we conclude
that petitioner is entitled to a deduction for a theft loss under
section 2054.
VI. Additions to Tax for Negligence
Section 6653(a)(1) provides that if any part of any
underpayment of tax required to be shown on a return is due to
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