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section 165, the term “theft” includes but is not limited to
larceny, embezzlement, and robbery. Sec. 1.165-8(d), Income Tax
Regs. The law of the jurisdiction where the alleged loss is
sustained governs the determination of whether a theft or
embezzlement occurred. Citron v. Commissioner, 97 T.C. 200, 207
(1991). Tex. Penal Code Ann. sec. 31.03 (Vernon Supp. 2005),
defines theft as follows:
Section 31.03. Theft.
(a) A person commits an offense if he unlawfully
appropriates property with intent to deprive the owner
of property.
(b) Appropriation of property is unlawful if:
(1) it is without the owner’s effective consent;
* * *.
Petitioners bear the burden of proving that a theft has occurred
and that the requirements of section 165 have been met. See
Mendes v. Commissioner, 121 T.C. 308, 314-315 (2003).
Petitioners have failed to show that Ms. Smith unlawfully
appropriated the diamond ring. Although the corporation was not
a party to the divorce agreement, petitioner, the sole
shareholder of the corporation, was a party to the divorce
agreement. The facts and circumstances demonstrate that either
petitioner consented to the designation of the diamond ring as
10(...continued)
arise from fire, storm, shipwreck, or other casualty,
or from theft.
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