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the deduction or exclusion claimed by the taxpayer); Halle v.
Commissioner, 7 T.C. 245 (1946) (a taxpayer’s return is not self-
proving as to the truth of its contents), affd. 175 F.2d 500 (2d
Cir. 1949).
We turn now to the substantive law that controls our
disposition of the disputed issue.
As a general rule, section 165(a) allows as a deduction any
loss sustained during the taxable year and not compensated for by
insurance or otherwise. However, in the case of an individual,
section 165(c) limits the deduction to: (1) Losses incurred in a
trade or business; (2) losses incurred in any transaction entered
into for profit, even though not connected with a trade or
business; and (3) losses of property not connected with a trade
or business or with a transaction entered into for profit, if
such losses arise from fire, storm, shipwreck, or other casualty,
or from theft.
The amount of a casualty loss is generally the lesser of the
taxpayer’s adjusted basis in the property or the diminution in
the fair market value of the property caused by the casualty.
Sec. 1.165-7(b)(1), Income Tax Regs.; see Helvering v. Owens, 305
U.S. 468, 471 (1939); Lamphere v. Commissioner, 70 T.C. 391, 395
(1978). The amount of a theft loss is determined similarly,
except that the fair market value of the property immediately
after the theft is considered to be zero. Sec. 1.165-8(c),
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