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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.
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