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entertainment, amusement, * * * (C) the business
purpose of the expense or other item, and (D) the
business relationship to the taxpayer of persons
entertained * * *
As with the other business expenses, petitioners did not submit
or offer any substantiation. Accordingly, petitioners are not
entitled to the section 162 deductions claimed on the Schedule C.
On their Schedule C, petitioners also claimed a $58,067
section 166 bad debt loss, which allegedly includes the theft of
business equipment and unpaid amounts owed to petitioner for his
services.
The record does not reflect, with any specificity, the
portion of the $58,067 attributable to the theft or unpaid
obligations for services. Any theft loss would be covered under
section 165, whereas any business bad debt would be covered under
section 166.
On their bankruptcy petition, petitioners listed the loss
from the equipment theft as an amount in excess of $25,000. The
record (in particular the police reports) reflects that the
claimed equipment thefts occurred almost 10 years before the
taxable year under consideration (1999). In that regard, theft
losses are allowable in the year sustained and are treated as
sustained in the year the taxpayer discovers the loss. Sec.
165(c)(3), (e); sec. 1.165-8(a)(1) and (2), Income Tax Regs.
Accordingly, petitioners would not be entitled to claim the
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Last modified: May 25, 2011