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Generally, to be entitled to loss deductions under section
165(a) the losses must be evidenced by closed and completed
transactions, fixed by identifiable events, and sustained during
the year in which the deductions are claimed. Sec. 1.165-1(b),
(d), Income Tax Regs. As explained in United Dairy Farmers, Inc.
v. United States, 267 F.3d 510 (6th Cir. 2001), the event that
identifies the loss of an asset “must be observable to outsiders
and constitute ‘some step which irrevocably cuts ties to the
asset.’” Id. at 522 (quoting Corra Res., Ltd. v. Commissioner,
945 F.2d 224, 226-227 (7th Cir. 1991), affg. T.C. Memo. 1990-
133); JHK Enters., Inc. v. Commissioner, T.C. Memo. 2003-79.
In A.J. Indus., Inc. v. United States, 503 F.2d 660, 664
(9th Cir. 1974), the Court of Appeals for the Ninth Circuit,
citing section 1.165-1(b) and (d), Income Tax. Regs., stated that
“A loss is not sustained and is not deductible because of mere
decline, diminution or shrinkage of the value of property”.
A number of court opinions decided prior to the Supreme
Court’s opinion in Newark Morning Ledger Co. v. United States,
supra, involved loss deductions claimed under section 165 and
attempted valuations of customer-based intangible assets, and we
believe them still to have relevance in the context of the
instant case.
In Skilken v. Commissioner, 420 F.2d 266 (6th Cir. 1969),
affg. 50 T.C. 902 (1968), upon its purchase of a vending machine
business, a taxpayer purchased contract rights for the placement
of cigarette vending machines on different properties. These
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