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At trial, petitioner explained that he bought the equipment
to use in a gold mining venture he carried on in 1989 in Nevada
on property owned by the Bureau of Land Management. Some time in
1989 he ceased to carry on this venture and went back to work for
a railroad. He covered the equipment with canvas and left it on
the mining site. As petitioner put it, this "was way out in the
middle of nowhere." Petitioner testified that the closest
building was probably 30 miles from the site and the closest town
was about 80 to 90 miles away. Petitioner did not insure the
equipment. He testified that he last saw the equipment in
approximately July 1992 and saw that the equipment was missing in
approximately June 1993. Petitioner did not file a police report
at any time.
Section 165 allows as a deduction theft losses sustained
during the year not compensated by insurance or otherwise. In
general, whether or not a theft loss is incurred in a trade or
business, the amount of the loss to be taken into account is the
lesser of either (1) the fair market value of the property
immediately before the theft, or (2) the adjusted basis of the
property. Secs. 1.165-7 and 1.165-8(c), Income Tax Regs.; see
also sec. 165(h). In the case of property used in a trade or
business, if the fair market value of the property immediately
before the theft is less than the adjusted basis, the amount of
the adjusted basis would be treated as the amount of the loss.
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Last modified: May 25, 2011