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divorce agreement,9 and, consequently, that the divorce
agreement’s designation of the diamond ring as the separate
property of Ms. Smith was ineffective. Because Ms. Smith refused
to return the diamond ring to the corporation upon demand,
petitioners contend that Ms. Smith embezzled the diamond ring and
that petitioners are entitled to a related section 165 theft loss
deduction in 2000.
Section 165 generally provides for the deduction of certain
casualty losses, including losses from theft.10 For purposes of
9Petitioners rely on an alleged prior State court decision.
Although petitioners have provided this Court with no evidence as
to the alleged State court decision, we understand petitioners’
position to be that the court rejected a claim by the corporation
that Ms. Smith breached the divorce agreement with respect to
certain oil and gas properties on grounds that the corporation
was not a party to the divorce agreement. Petitioners contend
that the State court decision that the corporation was not a
party to the divorce agreement terminated Ms. Smith’s right of
possession with respect to the ring.
10SEC. 165. LOSSES.
(a) General Rule.--There shall be allowed as a
deduction any loss sustained during the taxable year and
not compensated for by insurance or otherwise.
* * * * * * *
(c) Limitation on Losses of Individuals.--In the case
of an individual, the deduction under subsection (a) shall
be limited to--
* * * * * * *
(3) except as provided in subsection (h), losses of
property not connected with a trade or business or a
transaction entered into for profit, if such losses
(continued...)
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