- 14 -
to include, but shall not necessarily be limited to, larceny,
embezzlement, and robbery”); Whiteman v. Commissioner, supra,
(taxpayer denied theft loss deduction as to jewelry and furs
because he failed to establish both their value and ownership).
Further, theft losses are treated as sustained during the taxable
year in which the taxpayer discovers the loss. Sec. 165(e).
Notwithstanding the fact that petitioner’s claims of theft by
Government officials in the bankruptcy case, the FTC case, and
the IRS audit are meritless, petitioner “discovered” these events
well before 1998, the year at issue. She is not entitled to a
theft loss deduction in 1998. Respondent is sustained on this
issue.
Next, petitioner claimed entitlement to a deduction of
$225,000 as carryforward legal expenses. To the extent this
deduction is related to the legal expenses of the business, such
expenses would be reflected in the net income or loss of the
business that would flow through to the individual shareholders.
As noted earlier, petitioner had no basis in the S corporation
entitling her to deduct losses from the business. Moreover,
petitioner advanced no other convincing evidence or argument that
would entitle her to deduct the legal expenses. She has failed
to prove that her costs, if any, for defending herself and Mr.
Blodgett from civil or criminal liability connected with the
business were other than nondeductible personal expenses. Matula
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011