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Mr. Brown argues that because he was unable to close on the
townhouse, he forfeited the deposit under the terms of the
contract and, therefore, was entitled to claim a loss deduction.
However, this assumption is not supported by the terms of
the contract. The contract provided that upon the buyer’s
default, the seller may either seek specific performance or any
other relief provided by law or terminate the contract and keep
the earnest money deposit as liquidated damages. Mr. Brown has
not shown that the seller elected to keep the deposit as
liquidated damages or even that the seller intended to enforce
its contract claim against Mr. Brown. Indeed, Mr. Brown
admittedly received the $5,000 back from the seller during the
next taxable year. Accordingly, we find that Mr. Brown’s breach
of contract, in itself, was not a closed and completed
transaction giving rise to a deductible loss.3 See Lucas v.
American Code Co., 280 U.S. 445, 450 (1930).
Next, we must determine whether Mr. Brown is entitled to
claim a deduction for a theft loss in the amount of $22,300 for
the property taken from him by Ms. Lotts. Mr. Brown filed a
civil suit against Ms. Lotts in 1994, obtained a default
judgment, and has pursued collection since then. Mr. Brown did,
in fact, recover the vehicle from Ms. Lotts. We find that the
3We note, however, that because Mr. Brown reported the
recovery of the $5,000 deposit as income in 1994, he overreported
his taxable income in 1994 and may be entitled to a refund for
that year.
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