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such taxable year.” Sec. 1.165-1(d)(1), Income Tax Regs; see
also sec. 1.165-1(b), Income Tax Regs. However, if there exists
a claim for reimbursement with respect to which there is a
reasonable prospect of recovery, no portion of a loss with
respect to which reimbursement may be received is “sustained”
until it can be ascertained with reasonable certainty whether or
not such reimbursement will be received. Sec. 1.165-1(d)(2)(i),
Income Tax Regs.
3. Casualty and Theft Losses
Under section 165(a), a loss arising from theft is sustained
during the taxable year in which the taxpayer discovers the loss.
See sec. 165(e); sec. 1.165-1(d)(3), Income Tax Regs; sec. 1.165-
8(a)(2), Income Tax Regs. The term theft includes, but is not
limited to, larceny, embezzlement, and robbery. See sec. 1.165-
8(d), Income Tax Regs. Whether a theft exists “depends upon the
law of the jurisdiction wherein the particular loss occurred.”
Manteleone v. Commissioner, 34 T.C. 688, 692 (1960).
Petitioner urges us to find that the theft6 of the
furnishings and fixtures of the Hazelwood property occurred in
1997. At trial, however, petitioner candidly admitted that he
discovered the loss of such furnishings and fixtures early in
1996 when he regained possession of the building from his tenant.
6 In order to expedite our discussion, we shall accept that
any unauthorized removal of furnishings and fixtures from the
Hazelwood property constituted a theft under Michigan law.
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