Russell W. and Rebecca A. Willey - Page 5

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          petitioners have not established that a theft occurred.  We                 
          conclude that Ms. Dugan committed a theft from Mr. Willey when              
          she solicited and received payment for, but failed to deliver,              
          Treasures stock.                                                            
               Respondent further contends that even if petitioners                   
          establish that a theft occurred, they are not entitled to a                 
          deduction in 1993 because at the end of that year Ms. Dugan's               
          bankruptcy proceeding was pending and, as a result, petitioners             
          had a reasonable expectation of recovering some of their funds.             
          See sec. 1.165-1(d)(3), Income Tax Regs.  We disagree.  "A                  
          reasonable prospect of recovery exists when the taxpayer has bona           
          fide claims for recoupment from third parties or otherwise, and             
          when there is a substantial possibility that such claims will be            
          decided in his favor."  Ramsay Scarlett & Co. v. Commissioner, 61           
          T.C. 795, 811 (1974), affd. 521 F.2d 786 (4th Cir. 1975).                   
          Petitioners did not file a proof of claim until 1994, and even              
          then their chances of recovery were remote.  Therefore, in 1993             
          petitioners did not have a reasonable expectation of recovery.              
          Accordingly, we hold that petitioners are entitled to deduct a              
          theft loss of $299,900.                                                     
               To reflect the foregoing,                                              

                                            Decision will be entered                  
                                        under Rule 155.                               

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