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position that petitioner's loss deduction was limited to his
basis in the partnership interests, which respondent computed
using the Schedules K-1. We accept the approach taken by
respondent.
Section 165(a) permits a deduction for "any loss sustained
during the taxable year and not compensated for by insurance or
otherwise." Sec. 165(a). The amount of the deduction is limited
to the amount of the basis of the property prescribed by section
1011 for determining the loss from the sale or other disposition
of the property. Sec. 1.165-1(c), Income Tax Regs. Thus, the
key question concerns the bases of the properties involved.
Petitioner agrees that his loss deduction is limited to
basis, but disputes respondent's method for computing basis.
Petitioner first argues that for each partnership interest he is
entitled to a basis equal to the fair market value of that
partnership interest. Petitioner argues that when he pledged the
partnership interests as collateral, he relinquished total
control over those interests for the duration of the loan. This,
in petitioner's view, caused the basis to be equal to fair market
value. Since the fair market value of the partnership interests
was equal to $60,000 at the time of the foreclosure, petitioner
2(...continued)
on a stipulation of the parties. The parties did not stipulate,
or present any other evidence, as to the fair market value of
petitioner's interests in the 66 Farmout partnership.
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