Walter E. Hess and Helen L. Hess - Page 19

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               Petitioner has not established that his separation from                
          employment with Balfour caused him to incur a loss during 1993 on           
          his New York City sales territory.  In fact, a similar claim by             
          petitioner was rejected by the District Court when it ruled that            
          petitioner incurred no loss of equity in his sales territory                
          because he continued to service accounts in that territory after            
          leaving Balfour.  As the court stated:                                      
               Hess argues that even though he has taken his accounts                 
               to a Balfour competitor, Balfour must compensate him                   
               for his equity.  In reality, what Hess bought in 1971                  
               from Mr. Myers was the right to service accounts in a                  
               specific territory.  To now take those accounts from                   
               that territory, yet demand payment from Balfour for the                
               value of the territory, flies in the face of contract                  
               law, not to mention common sense.                                      
               Petitioner also has not proven that he has a basis in the              
          sales territory.  Petitioner "paid" Mr. Myers for this territory            
          with income that was not previously taxed to petitioner.                    
          Petitioner's "payments" were made through debits to his sales               
          account, and these debits were not included as taxable income on            
          the Forms W-2 that Balfour issued to him.  Nor does the record              
          reveal that petitioner otherwise reported these debits as income            
          on his returns.  Because petitioner's "payments" for his sales              
          territory were not included in his gross income, he lacks a basis           
          therein which, in turn, precludes him from deducting a loss on              
          its alleged destruction.                                                    
          3.  Accuracy-Related Penalty                                                
               Respondent determined that petitioner is liable for an                 
          accuracy-related penalty for negligence under section 6662(a) for           

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