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Petitioners have failed to prove that they were engaged in a
trade or business involving “international transportation” as
alleged on Schedules C of their Federal income tax returns for
1992. Petitioners have conceded that they were not in the trade
or business of making loans. Consequently, they are not entitled
to deduct the losses claimed on their respective Schedules C for
1992.
Did Petitioners Incur Theft Losses Under Section 165(c)(2) or
(3)?
Subject to certain limitations, any loss sustained during
the taxable year and not compensated for by insurance or
otherwise is deductible. See sec. 165(a). In the case of
individuals, the losses deductible under section 165(a) are
limited to (1) losses incurred in a trade or business, see sec.
165(c)(1), (2) losses incurred in any transaction entered into
for profit, see sec. 165(c)(2), and (3) with respect to property
not connected with a trade or business or a transaction entered
into for profit, a casualty or theft loss, see sec. 165(c)(3).
As an alternate position, petitioners argue that if they are
not allowed to deduct the losses claimed on their respective
Schedules C attached to their 1992 returns because the losses
were not incurred in a trade or business, they should be allowed
to claim them as theft losses under section 165(c)(2) or (3).
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