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Petitioner, a cash basis taxpayer, never received the
escrowed funds and did not include those funds in income or pay
tax thereon for 1990 (or any other year). Petitioner therefore
has no basis in the escrowed funds. Accordingly, petitioner is
not entitled to a deduction under section 165 for the theft loss
of those funds.3 See United States v. Kleifgen, 557 F.2d 1293,
1299 (9th Cir. 1977); Alsop v. Commissioner, 290 F.2d 726, 727
(2d Cir. 1961), affg. 34 T.C. 606 (1960).
Based on the record before us, we find that petitioner is
not entitled to a deduction under section 165 for the $173,000 of
escrowed funds that were stolen.
To reflect the concessions of the parties,
Decision will be entered
under Rule 155.
3 Although it is not altogether clear, petitioner appears to
claim that Mr. Stern paid income tax on some of the escrowed
funds. The record does not support petitioner's claim. Even
assuming arguendo that it did, petitioner would still not have a
basis in the escrowed funds and would not be entitled to a
deduction for those funds under sec. 165.
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Last modified: May 25, 2011