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$63,704 in 1991, $93,292 in 1992, zero in 1993, $97,908 in 1994,
$167,085 in 1995, $259,292 in 1996, $275,506 in 1997, $355,273 in
1998, and $333,926 in 1999. All the alleged theft losses were
first discovered and therefore deducted in 2000.
Petitioner timely filed his Federal income tax return for
taxable year 2000. On that return, he reported a loss of
$1,645,986, income of negative $1,317,719, and a tax liability of
zero.
Petitioner filed a Form 1045, Application for Tentative
Refund (refund request), dated May 17, 2001, which was received
by the Internal Revenue Service (IRS) on May 21, 2001. On the
refund request, petitioner claimed an embezzlement loss of
$1,801,213. Respondent refunded petitioner $120,933 for taxable
year 1999, $99,816 for taxable year 1998, and $150,243 for
taxable year 1997.
After examination of his return by the IRS, petitioner
conceded that the amount of the theft loss for taxable year 2000
should be reduced by $1,096,713 to $704,500. As a result of that
reduction, petitioner remitted to the IRS the refunds previously
received, plus interest, for taxable years 1997, 1998, and 1999.
On November 15, 2004, respondent issued a notice of
deficiency, determining that petitioner failed to substantiate a
theft loss deduction for taxable year 2000 of $1,645,986. In the
notice, respondent also determined that petitioner failed to
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