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fraud or negligent misrepresentation when he or she reasonably
relies on the misrepresentation to hold rather than sell his or
her stock.5
We disagree with petitioner. A cause of action based upon a
tort claim for fraud or negligent misrepresentation does not
support a theft loss deduction under section 165(a). A theft
loss requires a criminal appropriation of another’s property.
Edwards v. Bomberg, supra at 110; Bellis v. Commissioner, 61 T.C.
354, 357 (1973), affd. 540 F.2d 448 (9th Cir. 1976); Harcinske v.
Commissioner, T.C. Memo. 1984-132. As such, a tort cause of
action for fraudulent or negligent misrepresentation does not
give rise to a theft loss deduction under section 165(a). We
conclude that petitioner is not entitled to the claimed theft
loss deduction for 2000.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be
entered for respondent.
5 California has long recognized that persons induced by
misrepresentations into buying stock may sue for fraud and
misrepresentation. See Hobart v. Hobart Estate Co., 159 P.2d 958
(Cal. 1945); Sewell v. Christie, 124 P. 713 (Cal. 1912). Small
v. Fritz Cos., 65 P.3d 1255, 1257 (Cal. 2003), extended a cause
of action to shareholders who refrained from selling stock
because of fraud or negligent misrepresentations made by the
company.
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