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(1) the difference between the fair market value of the property
before the loss and the fair market value of the property after
the loss, the latter value in the case of loss by theft being
zero, or (2) the adjusted basis provided in section 1011 for
determining the loss from the sale or other disposition of the
property which was the subject of the loss. Sec. 165(b); secs.
1.165-7(b)(1), 1.165-8(c), Income Tax Regs. The basis for
determining the amount of the deduction for any loss is the
adjusted basis provided in section 1011 for determining the loss
from the sale or other disposition of the property which was the
subject of the loss. Sec. 165(b). With respect to a claimed
theft loss, such loss is sustained during the taxable year in
which a taxpayer discovers it. Sec. 165(e). Moreover, as we
concluded in Viehweg v. Commissioner, 90 T.C. 1248, 1255-1256
(1988):
If in the year of the discovery of the loss there
exists a claim for reimbursement with respect to which
there is a reasonable prospect of recovery, then there
is no closed and completed transaction fixed by identi-
fiable events and thus no deductible loss. * * *
A reasonable prospect of recovery exists when the taxpayer has a
bona fide claim for recoupment and there is a substantial possi-
bility that such claim will be decided favorably for the tax-
payer. Ramsay Scarlett & Co. v. Commissioner, 61 T.C. 795, 811
(1974), affd. 521 F.2d 786 (4th Cir. 1975). Whether a reasonable
prospect of recovery exists is determined as of the end of the
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