Curtis G. Lockett and Edna L. Lockett - Page 4




                                        - 4 -                                         
          Section 165(a) allows as a deduction “any loss sustained during             
          the taxable year and not compensated for by insurance or                    
          otherwise.”  For individuals, the deduction is available only               
          for:  (1) Losses incurred in a trade or business; (2) losses                
          incurred in transactions entered into for profit; or (3) losses             
          of property not connected with a trade or business or with a                
          transaction entered into for profit, if such losses arise from              
          “fire, storm, shipwreck, or other casualty, or from theft.”  Sec.           
          165(c).                                                                     
               The amount of a casualty or theft loss is generally limited            
          to the lesser of the property’s reduction in fair market value or           
          the property’s adjusted tax basis.  Secs. 1.165-7(b)(1) and                 
          1.165-8(c), Income Tax Regs.  Petitioners bear the burden of                
          proving both the occurrence of a casualty or theft within the               
          meaning of section 165 and the amount of the loss.  See Rule                
          142(a); Elliott v. Commissioner, 40 T.C. 304, 311 (1963).                   
               A casualty loss deduction under section 165(a) is allowed              
          only for the taxable year in which the loss was sustained.  Sec.            
          1.165-7(a)(1), Income Tax Regs.  If the taxpayer has a reasonable           
          prospect for recovering the loss (for example, through insurance            
          or a lawsuit), no portion of the loss is treated as being                   
          sustained until it can be ascertained with reasonable certainty             
          that the taxpayer will not receive reimbursement.  Sec. 1.165-              
          1(d)(2), Income Tax Regs.  A taxpayer has a reasonable prospect             







Page:  Previous  1  2  3  4  5  6  7  8  9  10  Next 

Last modified: March 27, 2008