River City Ranches #1 Ltd., Leon Shepard, Tax Matters Partner - Page 77

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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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