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that taxable year.4 This claimed loss eliminated their taxable
income for 2001 and resulted in a refund of the claimed $10,225
overpayment plus any statutory interest. Respondent then audited
the amended 2001 Federal income tax return and, on June 15, 2005,
issued the aforementioned notice of deficiency denying the
claimed theft loss deduction. Petitioners filed a timely
petition with this Court, and a trial was held on November 28,
2006, in Albuquerque, New Mexico.
OPINION
I. Parties’ Contentions
Citing section 165(c)(3),5 petitioners assert entitlement to
a theft loss deduction on the basis that Mr. Green committed
“fraud” within the meaning of New Mexico law. In essence, they
contend that Mr. Green took money from them intending not to
conform with the plans that he had agreed to follow in
constructing their house. Acknowledging that they must rely on
circumstantial evidence to prove Mr. Green’s intent to defraud
them, petitioners assert that the magnitude of Mr. Green’s
noncompliance with the construction plans “is not accidental.”
4 The manner in which petitioners arrived at that amount is
subject to dispute. In light of our ultimate disposition,
however, we need not delve into that issue.
5 Unless otherwise noted, all section references are to the
Internal Revenue Code of 1986, as amended and in effect for the
taxable year at issue. The Rule reference is to the Tax Court
Rules of Practice and Procedure.
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