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reimbursement, the fact that the taxpayer filed a lawsuit to
recover the deducted loss gives rise to an inference that he or
she had such a prospect. Estate of Scofield v. Commissioner,
supra; Ramsay Scarlett & Co. v. Commissioner, supra at 812-813.
The first issue is whether Mr. Brown is entitled to a loss
deduction with respect to the $30,900 currency that was seized by
Louisiana law enforcement officials pursuant to a civil
forfeiture statute. Mr. Brown filed a motion to recover the
currency in 1993, and formal civil forfeiture proceedings, which
are still pending, were instituted in early 1994. We find that
the fact that Mr. Brown took legal action in late 1993 and early
1994 indicates that he had a reasonable prospect of recovery at
the end of 1993.
Furthermore, even if Mr. Brown had lost the forfeiture case
and was required to forfeit the currency, he would be prohibited
by public policy from claiming a loss deduction. There is a
strong public policy against drug trafficking, and case law has
established that any deduction for property forfeited under the
forfeiture laws is precluded. Wood v. United States, 863 F.2d
417, 421 (5th Cir. 1989); Holmes Enters., Inc. v. Commissioner,
69 T.C. 114, 117 (1977); Holt v. Commissioner, 69 T.C. 75, 79-80
(1977), affd. 611 F.2d 1160 (5th Cir. 1980). Accordingly, we
sustain respondent’s disallowance of the $30,900 loss deduction.
The next issue is whether Mr. Brown is entitled to a loss
deduction with respect to the $5,000 deposit on the townhouse.
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