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Petitioner married Dawn Denise Stephens (Ms. Stephens) some
time prior to the year in issue. They separated in January 1998
when petitioner moved from the house in Texas where he and Ms.
Stephens were living at the time. As petitioner describes the
event, he left with only the clothes he was wearing and his young
daughter. Divorce proceedings were instituted by petitioner
during 1998. In connection with the divorce proceedings,
petitioner was deposed on September 18, 1998 (the deposition).
Petitioner and Ms. Stephens were divorced on October 29, 1998.
Petitioner filed a timely 1998 Federal income tax return.
He included a Schedule A, Itemized Deductions, and a Schedule C,
Profit or Loss From Business, with that return. On the Schedule
A he claimed, among other things, a $17,373 theft loss deduction.
On the Schedule C, petitioner identified his business as “MFG
Heat Equipment” and reported a net loss of $9,783.
The examination of petitioner’s 1998 return began after
July 22, 1998. In the notice of deficiency that resulted from
that examination, respondent disallowed the theft loss deduction
and most of the deductions claimed on the Schedule C. Respondent
also determined that the underpayment of tax required to be
shown on petitioner’s 1998 return is due to negligence. Other
adjustments made in the notice of deficiency are not in dispute.
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