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Discussion
Section 165(a) generally provides that "There shall be
allowed as a deduction any loss sustained during the taxable year
and not compensated for by insurance or otherwise." In the case
of an individual taxpayer, a loss deduction is limited to, inter
alia, a loss from theft. See sec. 165(c)(3). The deduction is
further limited by section 165(h). The amount of the deduction,
before the section 165(h) limitations, is the lesser of the fair
market value immediately before the theft or the basis (or cost)
of the property. See sec. 1.165-7(b)(1), Income Tax Regs.; see
also Helvering v. Owens, 305 U.S. 468 (1939). Even if we assume
that the fair market value of petitioner's bronze immediately
before the theft was $25,000, petitioner is still faced with
establishing his basis in the bronze.
Petitioner acquired the bronze by gift from his father, and
generally his basis is the same as his father's basis increased
by the amount of any gift tax paid. See sec. 1015(a), (d).2 If,
however, at the date of the gift, the fair market value was less
than the father's basis then petitioner's basis would be the fair
market value. See sec. 1015(a).3 Petitioner's father acquired
2 There is no evidence that any gift tax was paid.
3 Sec. 1015(a) also provides that
If the facts necessary to determine the basis in the hands
of the donor * * * are unknown to the donee, the Secretary
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Last modified: May 25, 2011