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Issues 1 and 2. Theft Loss Deductions; Deductions for Payments
of Corporate Employment Taxes and Interest Thereon
Petitioners bear the burden of proving their entitlement to
deductions for theft losses and for payment of the corporate
employment taxes and interest thereon. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).4 That this is a fully
stipulated case does not alter the burden of proof, or the
requirements otherwise applicable with respect to adducing proof,
or the effect of failure of proof. Rule 122(b).
Petitioners have claimed their theft loss deduction under
section 165(a) and their entitlement to deductions for paying the
corporate employment taxes and interest thereon under section
162(a).
Section 165(a) allows a deduction for “any loss sustained
during the taxable year and not compensated for by insurance or
otherwise.” Under section 165(a), a theft loss deduction is
allowable for the year “in which the taxpayer discovers such
loss.” Sec. 165(e). If in the year of discovery the taxpayer
has a claim for reimbursement on which there is a reasonable
4Sec. 7491(a) places the burden of proof on the Commissioner
in certain circumstances in court proceedings arising from IRS
examinations beginning after July 22, 1998. See Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3001(c), 112 Stat. 727. By the same token, sec. 7491(c)
places the burden of production on the Commissioner with respect
to additions to tax. Sec. 7491(a) and (c) does not apply in this
case because the examination of petitioners’ 1993, 1994, and 1995
tax years began on Jan. 8, 1996.
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