- 10 - the theft, and therefore petitioner may claim the deduction. In general section 165(a) allows a deduction for any loss sustained during the taxable year.3 Section 165(c)(1) limits the deduction to, among other things, losses incurred in a trade or business. Petitioner’s loss qualifies. Thus, petitioner is entitled to a loss deduction of $3,000 in 1993. Petitioner testified that in 1994, after he closed the service station, he kept some inventory that he was unable to return, and returned some inventory. Any inventory that petitioner kept or returned would not have been sold, and thus would not have contributed to gross sales. The only evidence in the record with respect to the value of unsold inventory is petitioner’s testimony that he kept a case of spark plugs for which he paid $1,000. We accept this testimony, and therefore petitioner’s cost of purchases to which the 22.8-percent markup is applied should be reduced by $1,000 in 1994. Depreciation In the notice of deficiency, respondent disallowed depreciation deductions for a tow truck and its engine in the amounts of $1,592 for 1993 and $1,137 for 1994. Respondent determined that petitioner had not proven that this equipment was used in a trade or business or for the production of income. In 3 Any loss arising from theft is treated as sustained in the year discovered. See sec. 165(e). We find that petitioner discovered the loss in 1993.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011