                        T.C. Memo. 2004-191



                      UNITED STATES TAX COURT



                MICHAEL E. YOAKUM, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10203-02.               Filed August 26, 2004.



     John Divens, for petitioner.

     Donna L. Pahl, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioner petitioned the Court to redetermine

the following deficiencies in Federal income tax and related

section 6662(a) accuracy-related penalties:
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              Year       Deficiency    Accuracy-Related Penalty
                                            Sec. 6662(a)

              1997        $218,137           $43,627.40
              1998         190,706            38,141.20
              1999         167,818            33,563.60

Following concessions by the parties, we are left to decide

whether petitioner may for the respective years deduct net

operating loss (NOL) carryovers of $726,572, $726,572, and

$703,308.1   We hold he may not.   Section references, unless

otherwise indicated, are to the applicable versions of the

Internal Revenue Code.   Rule references are to the Tax Court

Rules of Practice and Procedure.

                         FINDINGS OF FACT

     Some facts were stipulated and are so found.    The

stipulation of facts and the accompanying exhibits are

incorporated herein by this reference.    Petitioner resided in

Pasadena, California, when his petition to this Court was filed.

     During 1978, 1979, and 1980, petitioner invested in the

stock market primarily through the brokerage firm of Paine,

Webber, Jackson & Curtis (Paine Webber).    Douglas Osborne

(Osborne), a Paine Webber employee, was petitioner’s stockbroker.


     1
       The record contains sufficient evidence indicating that
respondent determined appropriately that petitioner was liable
for the referenced accuracy-related penalties. See sec. 7491(c).
Because petitioner’s brief is silent as to any issue concerning
that determination, we treat petitioner as having conceded it in
full. See Rybak v. Commissioner, 91 T.C. 524, 566 (1988); Money
v. Commissioner, 89 T.C. 46, 48 (1987).
                               - 3 -

On each day that Paine Webber was open for business, petitioner

visited its office and invested approximately $500,000 to $1

million in speculative securities.     From the time that petitioner

arrived at Paine Webber’s office, usually 6 to 6:30 a.m., he

started drinking alcoholic beverages, supplied by Paine Webber,

until he was high and happy but not stumbling drunk.    He

authorized each of his trades, and he was informed and

knowledgeable as to all of his trades.    Some of the trades

resulted in gains, and some of them resulted in losses.

     During 1980, petitioner had exhausted most of his funds, and

he ceased his regular involvement with Paine Webber.    In or about

1985, petitioner and his wife sued Paine Webber, Osborne, and

others (collectively, the defendants) in a U.S. District Court,

alleging that the defendants were liable for securities fraud,

negligence, and breach of fiduciary duty in the handling of

petitioner’s accounts.   The court dismissed the lawsuit as time

barred by the applicable period of limitations and for failure to

plead properly as to fraud.   That dismissal was affirmed by the

Court of Appeals for the Ninth Circuit.

     On his 1986 Federal income tax return, petitioner claimed an

$800,000 deduction for a casualty or theft loss.    On his 1997,

1998, and 1999 Federal income tax returns, petitioner claimed

that he was entitled to deduct with respect to that loss NOL

carryovers of $726,572, $726,572, and $703,308, respectively.
                                - 4 -

     In the notice of deficiency for the subject years,

respondent determined that petitioner was not entitled to deduct

any of the claimed NOL carryovers but, as to 1997, that

petitioner was entitled to deduct a capital loss of $3,000.

Respondent determined in the notice of deficiency that petitioner

was no longer entitled to deduct a $3,000 capital loss for either

1998 or 1999.

                               OPINION

     Petitioner argues in his brief that he is entitled to deduct

the NOL carryovers at issue.   According to petitioner, those

carryovers are attributable to a theft that petitioner suffered

in that “in essence Paine Webber stole his money from him by

supplying him with alcoholic beverages and allowed him to make

unwise investments that benefitted them directly” in the form of

higher commissions.   We disagree with petitioner’s claim that he

is entitled to deduct those NOL carryovers.

     Section 172 allows a taxpayer to deduct an NOL for a taxable

year.   The amount of the NOL deduction equals the sum of the NOL

carryovers plus NOL carrybacks to that year.   Sec. 172(a); see

also sec. 172(c) (NOL defined) and (d)(4)(C) (special rule as to

casualty or theft losses allowable under section 165(c)(2) or

(3)).   Absent an election to the contrary, an NOL for any taxable

year must first be carried back 3 years and then carried over 15
                               - 5 -

years.   Sec. 172(b)(1)(A), (2), and (3).2   Petitioner, as a

taxpayer attempting to deduct an NOL, bears the burden of

establishing both the existence of the NOL and the amount of any

NOL that may be carried over to the subject years.3    See Rule

142(a)(1); United States v. Olympic Radio & Television, Inc.,

349 U.S. 232, 235 (1955); Keith v. Commissioner, 115 T.C. 605,

621 (2000).   As part of that burden, petitioner must prove that

he is entitled to deduct his claimed theft loss.    New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); see also Jones v.

Commissioner, 24 T.C. 525, 527 (1955); Allen v. Commissioner,

16 T.C. 163, 166 (1951).   Deductions are a matter of legislative

grace and not a matter of right.   United States v. Olympic Radio




     2
       The Taxpayer Relief Act of 1997, Pub. L. 105-34, sec.
1082(a)(1)and (2), 111 Stat. 950, amended sec. 172(b)(1)(A) to
require generally a 2-year carryback and a 20-year carryover for
NOLs incurred in taxable years beginning after Aug. 5, 1997.
Petitioner in his brief claims without discussion that the
20-year rule applies. We disagree. The NOL at issue, if in fact
incurred, was incurred well before the effective date of the
20-year rule.
     3
       Sec. 7491(a) was added to the Code by the Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3001(c), 112 Stat. 727, effective for court proceedings
arising from examinations commencing after July 22, 1998. Sec.
7491(a)(1) provides that the burden of proof shifts to the
Commissioner in specified circumstances. Petitioner makes no
argument that sec. 7491(a)(1) applies to this case, and we
conclude that it does not. See, e.g., sec. 7491(a)(2) (sec.
7491(a)(1) applies with respect to an issue only if the taxpayer
meets certain requirements); see also Mediaworks, Inc. v.
Commissioner, T.C. Memo. 2004-177.
                               - 6 -

& Television, Inc., supra at 235; Deputy v. du Pont, 308 U.S.

488, 493 (1940).

     Petitioner has not established that he incurred an NOL or,

if he did, the amount of any NOL that may be carried over to the

subject years.   First, as to his claimed theft loss, section

165(a) and (c)(3) generally allows a taxpayer such as petitioner

to deduct losses from the theft of property if he establishes

(1) that a theft occurred under the law of the jurisdiction where

the alleged loss occurred, Monteleone v. Commissioner, 34 T.C.

688, 692 (1960), (2) the amount of the theft loss, Zmuda v.

Commissioner, 79 T.C. 714, 728-729 (1982), affd. 731 F.2d 1417

(9th Cir. 1984), and (3) the date that the loss from the theft

was discovered,4 McKinley v. Commissioner, 34 T.C. 59, 63-64

(1960).   River City Ranches # 1 Ltd. v. Commissioner, T.C. Memo.

2003-150.   Here, petitioner through the limited record that he

has chosen to build has not established any of the facts

necessary to meet any of these requirements.

     Second, even if petitioner had established those facts, he

has not proven that any portion of an NOL that he incurred before

1997 was applied properly to one or more of the subject years.

Petitioner must prove not only that he had an NOL in a year



     4
       A theft loss is treated as sustained when discovered by
the taxpayer, sec. 165(e), except to the extent that the taxpayer
has a reasonable prospect of recovery, Viehweg v. Commissioner,
90 T.C. 1248, 1255-1256 (1988).
                               - 7 -

before 1997, but that a portion of the NOL was properly

deductible in one or more of the subject years.   See Jones v.

Commissioner, 25 T.C. 1100, 1104 (1956), revd. and remanded on

other grounds 259 F.2d 300 (5th Cir.1958); see also sec. 6001;

sec. 1.6001-1(a), (e), Income Tax Regs. (taxpayers must keep

sufficient records to establish the amounts of any items reported

on their Federal income tax returns).   That burden requires at a

minimum that he show that:   (1) He had an NOL in at least one

specified taxable year before 1997, (2) he elected to forgo a

carryback of that NOL, see sec. 172(b)(3),5 or, if he made no

such election, the NOL could not be fully deducted against income

in the 3 taxable years immediately preceding the taxable year of

the NOL, (3) the NOL (as adjusted by the amounts deducted in

carryback years) could not be deducted against income in the

taxable years immediately and chronologically following the

taxable year of the NOL, and (4) that 1997 is no more than 15

taxable years after the taxable year of the NOL that he seeks to

deduct in 1997, and that 1998 and 1999 are no more than 15

taxable years after the taxable year of the NOL that he seeks to

deduct in those respective years.   See Green v. Commissioner,

T.C. Memo. 2003-244; Lassiter v. Commissioner, T.C. Memo.


     5
       Sec. 172(b)(3) allows a taxpayer to elect to relinquish
the carryback period. Such an election must be made, in a
prescribed manner, by the due date (including extensions) for
filing the taxpayer’s return for the NOL year in which the
election is to be in effect. Id.
                               - 8 -

2002-25.   Petitioner has not met any of these requirements.

While petitioner in retrospect apparently recognized that he had

not met this burden through the evidence that is contained in the

record, and attached to his brief an exhibit purporting to show

his NOL carryovers from 1986 through 1999, we give no

consideration to that exhibit as it is not evidence.     See Rule

143(b); see also Harris v. Commissioner, T.C. Memo. 1998-332

(documents attached to a brief are not evidence).

     We sustain respondent’s determination as to this issue in

full.   All of petitioner’s arguments have been considered, and we

have concluded that those arguments not discussed herein are

without merit.   To reflect respondent’s concessions,


                                            Decision will be entered

                                       under Rule 155.
