Estate of Robert L. Wagner, Deceased, Ruth R. Wagner, Personal Representative, and Ruth R. Wagner, et al. - Page 12

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          as a deduction under section 165(a), a loss must be evidenced by            
          closed and completed transactions, fixed by identifiable events,            
          and * * * actually sustained during the taxable year.”   An                 
          essential inquiry under the “closed transaction” concept is                 
          whether, in the year the deduction is sought, there exists a                
          substantial possibility that the alleged losses could be recouped           
          by actions against responsible third parties or otherwise.  E.g.,           
          Ramsay Scarlett & Co. v. Commissioner, 61 T.C. 795, 807 (1974),             
          affd. 521 F.2d 786 (4th Cir. 1975).  When such a claim exists, no           
          portion of the loss with respect to which reimbursement might be            
          received is sustained until it becomes reasonably certain that              
          reimbursement will not be received.  Sec. 1.165-1(d)(2)(i),                 
          Income Tax Regs.                                                            
               B.  Reasonable Prospect of Recovery                                    
               The existence of a reasonable prospect of recovering from              
          litigation is determined by the facts and circumstances of each             
          case.  Boehm v. Commissioner, 326 U.S. 287, 292-293 (1945).  The            
          determination is based primarily on objective evidence, Ramsay              
          Scarlett & Co. v. Commissioner, supra at 812, but the taxpayer's            
          subjective belief as of the close of the taxable year also is a             
          relevant factor, Boehm v. Commissioner, supra at 292-293.  The              
          loss deduction need not be postponed if the potential for success           
          of a claim is remote or nebulous.  Ramsay Scarlett & Co. v.                 
          Commissioner, supra at 811.  Also, where the financial condition            
          of the person against whom a claim is filed is such that actual             




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