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Petitioners cite: (1) Nichols v. Commissioner, 43 T.C. 842
(1965), for the general proposition that the “partnerships are
entitled to a theft loss deduction” because a “promoter’s fraud
in obtaining money from investors in a tax shelter constitutes
theft under Section 165”; (2) Cummin v. United States, 73 AFTR 2d
2092 (D.N.J. 1994), for the propositions that (a) “the
partnerships are entitled to a business theft loss” where the
partnerships’ transactions lack “economic substance by reason of
fraud”, and (b) “the Tax Court has contemplated there will be
circumstances where a partner’s out-of-pocket loss in a tax
shelter is deductible as a theft loss”; and (3) Girgis v.
Commissioner, T.C. Memo. 1987-556, affd. in part, revd. in part,
and remanded 888 F.2d 1386 (4th Cir. 1989), and Harrell v.
Commissioner, T.C. Memo. 1978-211, for the proposition that if it
is proven that “the money invested by a partner in a partnership
is lost to another partner’s theft of the same, the partnership
has incurred a loss.”
Petitioners’ reliance on Nichols v. Commissioner, supra, is
misplaced. Nichols is distinguishable from the instant cases and
is not persuasive in establishing that a theft loss occurred at
the partnership level.
The taxpayers in Nichols were individuals who invested in a
tax shelter and proved that the promoter of the investment did
not execute the transactions for which the investors bargained.
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