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with self-serving and incredible testimony. Because petitioner
did not introduce credible evidence with respect to those factual
issues, the burden of proof does not shift to respondent under
section 7491(a)(1).7 Accordingly, we need not decide whether
petitioner has complied with the applicable requirements of
section 7491(a)(2). The burden of proof rests with petitioner to
prove that he qualifies for a theft loss deduction in excess of
the amount respondent allowed in the notice of deficiency.
Section 165(a) allows a deduction for “any loss sustained
during the taxable year and not compensated for by insurance or
otherwise.” Concerning theft losses, section 165(a) is
applicable for the year “in which the taxpayer discovers such
loss.” Sec. 165(e). For purposes of section 165(e), theft
includes embezzlement. Sec. 1.165-8(d), Income Tax Regs.
To carry his burden, petitioner must establish that the
alleged theft loss occurred and that the requirements of section
165 have been met. See Allen v. Commissioner, 16 T.C. 163, 166-
167 (1951). Petitioner must establish, inter alia, the existence
of a theft within the meaning of section 165 and the amount of
the claimed theft loss. See Elliott v. Commissioner, 40 T.C.
304, 311 (1963). Whether certain actions constitute theft for
7We note that, although the burden of proof did not shift,
respondent did produce a full source and applications analysis of
petitioner’s business and personal income. The analysis shows no
missing funds.
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