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Losses are deductible under section 165.12 Individuals are
not permitted to deduct losses unless the losses are (1) incurred
12 Sec. 165, as in effect for 1983, provides, in pertinent
part, as follows:
SEC. 165. LOSSES.
(a) General Rule.--There shall be allowed as a
deduction any loss sustained during the taxable year and not
compensated for by insurance or otherwise.
* * * * * * *
(c) Limitations on Losses of Individuals.--In the case
of an individual, the deduction under subsection (a) shall
be limited to--
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered
into for profit, though not connected with a trade or
business; and
(3) except as provided in subsection (h) [relating
to presidentially proclaimed disasters], losses of
property not connected with a trade or business, if
such losses arise from fire, storm, shipwreck, or other
casualty, or from theft.
* * * * * * *
(e) Theft Losses.--for purposes of subsection (a), any
loss arising from theft shall be treated as sustained during
the taxable year in which the taxpayer discovers such loss.
Although the years in issue are 1986, 1987, and 1988, we use
the statute as in effect for 1983 because that is the year for
which the loss was claimed and from which the loss was carried
forward. The later amendment of subsec. (c)(3), by sec.
711(c)(2)(A)(i) of the Deficit Reduction Act of 1984, Pub. L. 98-
369, 98 Stat. 494, 943, does not affect the instant case.
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