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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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Last modified: May 25, 2011