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With respect to the liens on the Southampton property,
petitioners have presented no evidence that Ms. Smith unlawfully
appropriated petitioner’s property intending to deprive him of
it. Consequently, we hold that petitioners are not entitled to a
section 165 theft loss deduction with respect to the alleged
failure of Ms. Smith to assume the obligation of liens on the
Southampton property. See Rule 142(a).
Furthermore, petitioners have failed to demonstrate that
they are entitled to a section 166 bad debt deduction with
respect to the liens on the Southampton property. Section 166(a)
generally provides that a taxpayer may deduct the amount of
certain debts owed to the taxpayer which become worthless in the
year of the deduction.13 Section 166(d) provides that the loss
13SEC. 166. BAD DEBTS
(a) General Rule.--
(1) Wholly worthless debts.--There shall be allowed
as a deduction any debt which becomes worthless within
the taxable year.
(2) Partially worthless debts.--When satisfied that
a debt is recoverable only in part, the Secretary may
allow such debt, in an amount not in excess of the part
charged off within the taxable year, as a deduction.
* * * * * * *
(d) Nonbusiness Debts.--
(1) General rules.--In the case of a taxpayer other
than a corporation--
(continued...)
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