Robert Lee and Rebecca Waters - Page 10

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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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