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Commissioner, 675 F.2d 1077, 1078 (9th Cir. 1982), affg. T.C.
Memo. 1979-479; Reed v. Commissioner, T.C. Memo. 1986-213.
We express no opinion on whether the actions of Mr. Knight
and Mr. Falcon constitute theft under State law. Petitioner
testified that the lawsuit against her father and Mr. Falcon to
recover the annuity proceeds was still pending in District Court.
The pending lawsuit gives rise to the inference that petitioners
had a reasonable prospect for recovery as of the date of trial.
See Dawn v. Commissioner, supra. Nothing in the record rebuts
this inference. Accordingly, any theft loss petitioners suffered
is not considered sustained during 2003. See secs.
1.165-1(d)(3), 1.165-8(a)(2), Income Tax Regs. Respondent’s
determination on this issue is sustained.
II. Accuracy-Related Penalty
Section 6662(a) provides that a taxpayer may be liable for a
penalty of 20 percent of the portion of an underpayment of tax
attributable to negligence or disregard of rules or regulations.
Sec. 6662(a) and (b)(1). Negligence includes any failure to make
a reasonable attempt to comply with the provisions of the
internal revenue laws. Sec. 1.6662-3(b)(1), Income Tax Regs.
Disregard of rules or regulations includes any careless,
reckless, or intentional disregard. Sec. 1.6662-3(b)(2), Income
Tax Regs. The Commissioner bears the burden of production with
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