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deduction and exemptions resulted in no taxable income reflected
on petitioners’ 1999 return.
Petitioners claimed that the bad-debt loss resulted from
thefts of equipment and unpaid obligations of clients, which were
evidenced by several proofs of claim filed in a debtor’s
bankruptcy during 1995. During the early 1990s, petitioner was a
subcontractor who installed fire protection systems under the
name “Industrial Fire Protection, Inc.”.
Police reports dated November 9, 1990, and November 10,
1994, contained petitioner’s allegations that certain of his
equipment had been stolen from jobsites.
Duane O’Malley was petitioner’s debtor, and petitioner filed
various claims in Mr. O’Malley and his wife’s joint bankruptcy
proceedings. Petitioner’s claims included claims for unpaid
services rendered by petitioner and claims resulting from six
legal actions during 1990, 1992, 1994, and 1995.
Petitioner had a contentious and convoluted relationship
with the O’Malleys. Petitioner sued the O’Malleys twice during
1990 for breach of contract. In one suit he received a $2,970
judgment, which was satisfied in the amount of $3,256.34,
including interest. The other case was dismissed for want of
prosecution and refiled in 1994. Also during 1990, petitioner
was convicted of grand theft and forgery on account of his
wrongfully charging more than $3,000 on Mr. O’Malley’s business
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