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from the theft of property. Sec. 165(a), (c)(3). Petitioners
bear the burden of proving by a preponderance of the evidence
that a theft actually occurred. Rule 142(a); Jones v.
Commissioner, 24 T.C. 525, 527 (1955); Allen v. Commissioner, 16
T.C. 163, 166 (1951); Ginesky v. Commissioner, T.C. Memo. 1994-
551.
To carry this burden of proof, section 165 requires
petitioners to establish all the required elements of a theft
loss. Yates v. Commissioner, T.C. Memo. 1988-565. First,
petitioners must show that a theft occurred under the law of the
jurisdiction wherein the alleged loss occurred. Monteleone v.
Commissioner, 34 T.C. 688, 692 (1960). Second, petitioners must
prove the amount of the theft loss. Gerstell v. Commissioner, 46
T.C. 161, 175 (1966); sec. 1.165-8(c), Income Tax Regs. Third,
petitioners must establish the date that the loss from theft was
discovered. Sec. 165(e); McKinley v. Commissioner, 34 T.C. 59,
63 (1960); sec. 1.165-8(a), Income Tax Regs.
For purposes of section 165, “any loss arising from theft
shall be treated as sustained during the taxable year in which
the taxpayer discovers such loss.” Sec. 165(e); sec. 1.165-
8(a)(2), Income Tax Regs. However, if in the year of discovery
there exists a claim for reimbursement with respect to which
there is a reasonable prospect of recovery, only that portion of
the loss not covered by that claim for reimbursement is
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