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resulting from the $25,800 disallowance for cost of goods sold.3
At trial and on brief, petitioners presented their case as a
claim for a loss under section 165.
Section 165(a) allows as a deduction any loss sustained by a
taxpayer during the taxable year that is not compensated for by
insurance or otherwise. Under section 165(c), in the case of an
individual, the deduction under section 165(a) is limited to (1)
losses incurred in a trade or business; (2) losses incurred in
any transaction entered into for profit, though not connected
with a trade or business; and (3) losses of property not
connected with a trade or business or a transaction entered into
for profit, if such losses arise from "fire, storm, shipwreck, or
other casualty, or from theft." This latter deduction is subject
to additional limitations under section 165(h).4
As noted earlier, respondent, on brief, conceded that
petitioners sustained an ordinary abandonment loss in the amount
of $25,800, but respondent disagrees that this loss was sustained
3 In a trial memorandum, respondent stated that allowance
of the $120 in office expenses claimed on Schedule C of
petitioners' return was inadvertent; however, respondent did not
file an answer or otherwise move to increase the deficiency with
respect to this item.
4 Sec. 165(h)(1) allows the loss deduction only to the
extent that the amount of the loss from each casualty exceeds
$100, and sec. 165(h)(2) generally allows the net casualty loss
deduction only to the extent the net casualty losses exceed 10
percent of the taxpayer's adjusted gross income.
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Last modified: May 25, 2011