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pursuant to section 165(a) are sometimes referred to as
“abandonment losses to reflect that some act is required which
evidences an intent to discard or discontinue use permanently.”
Gulf Oil Corp. v. Commissioner, 914 F.2d 396, 402 (3d Cir. 1990)
(citing A.J. Indus., Inc. v. United States, 503 F.2d 660 (9th
Cir. 1974)), affg. on this issue, revg., and remanding 87 T.C.
135 (1986).
In order for the loss of an intangible asset to be
deductible, there must be “‘(1) an intention on the part of the
owner to abandon the asset, and (2) an affirmative act of
abandonment.’” Id. (quoting A.J. Indus., Inc. v. United States,
supra at 670).
Losses claimed with respect to nondepreciable property must
also meet the requirements of section 1.165-2(a), Income Tax
Regs., which provides in part:
A loss incurred in a business or in a transaction
entered into for profit and arising from the sudden
termination of the usefulness in such business or
transaction of any nondepreciable property, in a case
where such business or transaction is discontinued or
where such property is permanently discarded from use
therein, shall be allowed as a deduction under section
165(a) for the taxable year in which the loss is
actually sustained. * * *
B. Burden of Proof
In general, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving otherwise.
Rule 142(a). Although section 7491 may operate in specified
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Last modified: May 25, 2011