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income and FICA taxes are reported quarterly on Form 941. Secs.
31.6011(a)-1(a)(1), 31.6011(a)-4(a)(1), Employment Tax Regs.
FUTA taxes are required to be reported annually on Form 940.
Sec. 31.6011(a)-3, Employment Tax Regs. We hold petitioners are
not entitled to any deductions under section 162(a) for the
corporate employment taxes and interest thereon they paid the IRS
out of their own pockets. We now address issues 1 and 2 in
detail.
A. Ownership of the Corporate Employment Tax Funds; Right
to Deduction for the Corporate Employment Taxes and
Interest Thereon Paid to the IRS
Respondent argues the embezzlement claim does not belong to
petitioners or SWAS but rather to petitioners’ corporations.
Respondent also argues that petitioners are not entitled to
deduct their personal payments of the corporate employment taxes
because petitioners’ corporations had already deducted the same
amounts on their corporate returns.
Petitioners assert the embezzlement claim belongs to them in
their individual capacities because the funds were stolen
directly from their sole proprietorship, SWAS. Petitioners also
argue they are entitled to deduct their payments of the corporate
employment taxes out of their own pockets.
Petitioners did not own the corporate employment tax funds
in the hands of SWAS and therefore cannot claim a theft loss
deduction. On similar grounds, petitioners are not entitled to
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