Robert J. and Anne L. Wilson - Page 22

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          petitioner and the State, the parties agreed that settlement                
          included prejudgment interest.  Based on the foregoing facts and            
          circumstances, we find that $34,618 of the $61,604 should be                
          treated as interest income to petitioners.                                  
          Issue 3. Capital Loss                                                       
               In 1989, petitioners sold the stock fund for $27,205.57.               
          Respondent determined that petitioners had a basis of $29,214.38            
          in the stock fund.  On brief, respondent concedes that                      
          petitioners had a basis of $29,214.38 in the stock fund,                    
          representing their original $19,750 investment plus two dividend            
          reinvestments of $7,006.92 and $2,457.46. Accordingly, respondent           
          further concedes that petitioners are entitled to a $2,008.81               
          loss on the sale of the stock fund.  Petitioners argue that their           
          basis should be $2,104.66 higher than determined by respondent              
          because they received a $2,104.66 distribution from the stock               
          fund in 1989 that they reinvested in the stock fund.                        
               Section 165(a) allows a taxpayer to deduct "any loss                   
          sustained during the taxable year and not compensated for by                
          insurance or otherwise."  However, section 165(c) limits the                
          scope of this deduction for individuals.  Individuals may take              
          deductions only for losses which are incurred in a trade or                 
          business, losses incurred in transactions entered into for                  
          profit, and certain casualty and theft losses.  Sec. 165(c)(1),             
          (2), and (3).                                                               

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