- 12 -
is limited to situations where the taxpayer has a basis in the
item he is claiming a deduction or a loss on. See Oates v.
Commissioner, 316 F.2d 56, 57-58 (8th Cir. 1963), affg. T.C.
Memo. 1962-77; Perry v. Commissioner, 92 T.C. 470, 477-478
(1989), affd. without published opinion 912 F.2d 1466 (5th Cir.
1990); Swenson v. Commissioner, 43 T.C. 897, 898 (1965); Towers
v. Commissioner, 24 T.C. 199, 239 (1955), affd. 247 F.2d 233 (2d
Cir. 1957); O’Meara v. Commissioner, 8 T.C. 622, 632-633 (1947).
It is well established that a cash basis taxpayer is not entitled
to a deduction under section 165 for the loss of potential,
unreported income. See Hort v. Commissioner, 313 U.S. 28, 33
(1941); Escofil v. Commissioner, 464 F.2d 358, 359 (3d Cir.
1972), affg. T.C. Memo. 1971-131; Hutcheson v. Commissioner, 17
T.C. 14, 19 (1951). Additionally, a cash basis taxpayer is not
entitled to a deduction under section 166 for an income item when
the item has never been reported in income. See Gertz v.
Commissioner, 64 T.C. 598, 600 (1975); Seymour v. Commissioner,
14 T.C. 1111, 1117 (1950); Garrison v. Commissioner, T.C. Memo.
1994-200, affd. without published opinion 67 F.3d 299 (6th Cir.
1995). “A short form for stating the rule might thus be that the
process of establishing a basis for an income item consists, in
effect, of reporting it in the taxpayer’s gross income for tax
purposes.” O’Meara v. Commissioner, supra at 633.
Petitioners do not dispute respondent’s specific allegation
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011