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be ascertained with reasonable certainty they could recover
nothing from Mr. Kanz.
For all the foregoing reasons, petitioners are not entitled
to a theft loss deduction under section 165: Petitioners are not
the owners of the allegedly embezzled funds, petitioners have
failed to prove that theft occurred, and petitioners have failed
to prove there was no reasonable prospect of recovery.
Issue 3. Addition to Tax Under Section 6651(a)(1) for Failure To
Timely File the 1995 Return
On April 15, 1996, petitioners filed Form 4868 extending the
due date of their 1995 tax return to August 15, 1996.
Petitioners claim they filed a Form 2688 which extended the time
to file their 1995 tax return to October 15, 1996. They then
mailed their 1995 tax return on October 15, 1996, and respondent
received it on October 17, 1996. Petitioners did not attach a
copy of Form 2688 to their 1995 tax return, which they claim was
an “oversight”. Exhibit 8-P is a photocopy of the Form 2688
allegedly submitted by petitioners. Respondent claims his
records do not indicate receipt of a Form 2688 from petitioners.
Consequently, respondent claims that petitioners are liable for
an addition to tax under section 6651(a)(1) because they did not
timely file their 1995 tax return, which was due on August 15,
1996.
Petitioners contend that Form 2688 was timely mailed by
August 15, 1996, and that it was approved by the IRS. They point
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