¹Sec. 165(h) provides that a theft loss incurred by a noncorporate taxpayer on property not used in a trade or business or in a transaction entered into for profit is deductible to the extent that (1) it exceeds $100; and (2) added to other net casualty or theft losses incurred by the taxpayer for the tax year, it exceeds 10% of the taxpayers adjusted gross income for the year.

²See Regs. Sec. 1.165-1(b).

³See Regs. Sec. 1.165-8(c) and -7(b)(1)(ii).

⁴See B.C. Cook & Sons, Inc., 59 TC 516 (1972) (loss attributable to embezzlement was held deductible in the year discovered, even though the (1) embezzlement had been reflected in the taxpayers prior-year returns as purchases in computing costs of goods sold and (2) deficiency assessments for those prior years were barred by the SOL).

⁵Joseph C. Mann, TC Memo 1981-684.

⁶Est. of Levi T. Scofield, 266 F2d 154 (6th Cir. 1959), affg in part and revg in part 25 TC 774 (1955).

⁷See Temp. Regs. Sec. 1.62-1T(c)(1), (4), (5), (10) and (13).

⁸See, e.g., U.S. Dept of Justice, Stock Broker Indicted in Fraud Scheme (10/5/04); and U.S. Securities and Exchange Commission Litigation Release No. 17590 (6/27/02).

⁹See Peter F. Maring, TC Memo 1988-469 (citing Barry Glass, 87 TC 1087 (1986)) (purported government securities transactions found to be fictitious and entered into for the sole purpose of generating tax losses, were not bona fide transactions; thus, the income and gains reported by clients and limited partners had to be eliminated, as well as the losses). See also, Sherman B. Harland, 312 F2d 402 (Ct. Cl. 1963) (in a refund suit, the court held that a corporation was entitled to recover a part of overpaid taxes. It found that some income items reflected in the taxpayers books and records were fictitious or nonexistent. Thus, items of income and loss that were invalidly reported due to transactions nonexistence were excluded).

¹⁰Marian Brockamp, 519 US 347 (1997).

¹¹For purposes of this rule, Sec. 1313(a) defines determination as (1) a decision by the Tax Court, or a judgment, decree or other order by any court of competent jurisdiction, which has become final; (2) a closing agreement; (3) a final disposition by the IRS of a refund claim; or (4) under regulations prescribed by the IRS, an agreement for mitigation purposes, signed by the Service and by any person, relating to such persons tax liability.

¹²James H. Mills, 890 F2d 1133 (11th Cir. 1989).

¹³See IRM 21.5.9.3.7.4 and Service Center Advice 199941039 (10/15/99).

¹⁴See id.

¹⁵See id.

¹⁶See Bemis Brothers Bag Co., 56 F2d 407 (DC MO 1931).

¹⁷Virginia Vincent, 219 F2d 228 (9th Cir. 1955).

¹⁸See Cheryl Brewer, TC Memo 1997-542; Jack Baylon, 43 F2d 1451 (1995); and Louise F. Young, 240 F3d 369 (4th Cir. 2001).

¹⁹John W. Banks, II, 125 S.Ct. 826 (2005); see Tax Trends, Supreme Court Decides Contingent Fee Cases, 36 The Tax Adviser 178 (March 2005).

²⁰See Nissenbaum, Significant Individual Provisions of the AJCA, 36 The Tax Adviser 92 (February 2005).

²¹Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries and Appraisers Before the Internal Revenue Service (June 2005).

²²See AICPA Statement on Standards for Tax Services No. 6, Knowledge of Error: Return Preparation.