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are separate and distinct. By arguing that the partners and not
the partnerships suffered to their detriment, petitioners have
not met a required element of equitable estoppel. Accordingly,
petitioners may not apply equitable estoppel to depart from the
section 165(e) year of discovery requirement.
(ii) Application of the Rod Warren Ink Case
Citing Rod Warren Ink v. Commissioner, 912 F.2d 325 (9th
Cir. 1990), petitioners argue that the sheep partnerships may
deduct theft losses in each year of occurrence rather than in the
year of discovery by the partnerships.
In Rod Warren Ink, the Court of Appeals for the Ninth
Circuit held that the personal holding company (PHC) therein
could deduct theft losses in the years the losses were sustained,
rather than in the year the losses were discovered. Id. at 327-
328.
Due to the unique interaction between section 165(e) and the
PHC tax scheme, a literal application of section 165(e) would
have forced the PHC in Rod Warren Ink to declare income it never
actually received, while preventing the PHC from offsetting this
income through appropriate loss deductions. Id. at 328.
Limiting its holding to the “unique factual pattern” and
“peculiar facts” presented in the case, id., the Court of Appeals
for the Ninth Circuit concluded that a departure from the literal
meaning of section 165(e) was warranted in order to avoid the
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