John Franklin Foust - Page 14

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               Petitioner has not established that the disaster payment is            
          excludable from Cheyenne’s gross income.7  Petitioner has not               
          shown that Cheyenne was entitled to receive the disaster payment            
          by reason of having sustained any casualty loss for which it                
          would have been entitled to a casualty loss deduction under                 
          section 165.  As a small business corporation engaged in farming,           
          Cheyenne in all likelihood had used the cash method of                      
          accounting.  Secs. 447 and 448.  As a result, it would have had             
          no basis in the crops of a prior year in respect of which it was            
          entitled to a disaster payment.  Lacking any such basis, it would           
          not have been entitled to a casualty loss for which the disaster            
          payment would have acted as reimbursement.                                  
          Issue 3:  The Schedule E Loss                                               
               On his 1989 personal Federal income tax return, petitioner             
          claimed a Schedule E loss from Cheyenne in the amount of $11,503.           
          Cheyenne’s Form 1120S for 1989 did not display any such loss, and           
          petitioner did not file an amended return for Cheyenne’s 1989               
          taxable year.                                                               
               Petitioner has failed to substantiate the Schedule E loss              
          claimed on his 1989 personal return.  Cheyenne’s Form 1120S was             
          marked “no activity”, and the evidence in the record indicates              

               7 Petitioner did not proffer evidence or argument that                 
          disaster payments would be excludable from Cheyenne’s income as             
          disaster relief, cf. Bannon v. Commissioner, 99 T.C. 59, 62-63              
          (1992), or as Federal subsidies covered by sec. 126.                        

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