Rod Warren Ink, a Corporation v. Commissioner of Internal Revenue

GEORGE, District Judge:

In this action, Rod Warren Ink (Ink) appeals from an adverse decision by the United States Tax Court. Rod Warren Ink v. Commissioner, 92 T.C. 995 (1989). The sole issue before this court is whether theft losses are deductible only in the year of discovery pursuant to section 165(e) for purposes of calculating the personal holding company (PHC) tax imposed by section 541 et seq. According to section 165(e), “any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.” The tax court held that Ink could deduct its theft losses only in the year of discovery. Ink appeals to this court pursuant to sections 7482 and 7483. Since the appeal presents a question of law, we review the tax court’s decision on a de novo basis. Klamath Lake Pharmaceutical Association v. Klamath Medical Service Bureau, 701 F.2d 1276, 1282 (9th Cir.), cert. denied, 464 U.S. 822 , 104 S.Ct. 88 , 78 L.Ed.2d 96 (1983).

The parties have stipulated to the primary facts. During the relevant years, Ink was a California corporation wholly owned by Rodney Warnken. Ink derived its income from Warnken’s writing and producing of…