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partnership level, which they have not. Assuming, arguendo, that
petitioners had proven that the partnerships were the victims of
a partnership level theft, petitioners still failed to satisfy
the year of discovery element required to claim a theft loss
deduction.
Petitioners acknowledge that pursuant to section 165(e), a
taxpayer may deduct a theft loss only in the tax year in which
the taxpayer discovers the loss. Further, petitioners concede
that the partnerships’ discovery of the alleged thefts occurred
in 1997 or 1998, which is after the last year at issue in this
case. However, petitioners assert that respondent is equitably
estopped from denying the theft loss deduction in each of the
years at issue regardless of the actual year of discovery. In
addition, petitioners argue that under Rod Warren Ink v.
Commissioner, 912 F.2d 325 (9th Cir. 1990), this Court “may
depart from the literal meaning of [section 165(e)] regarding the
year of discovery in order to avoid unintended negative
consequences to the taxpayer and to effectuate Congress’ intent.”
Petitioners’ sole purpose in seeking a deviation from the
discovery date requirements of section 165(e) to deduct the theft
losses in each of the years at issue is to distribute losses from
the partnerships to the individual partners, thereby reducing the
amount of interest partners owe on deficiencies related to the
TEFRA partnership adjustments.
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