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2. Property Held for the Production of Income/Casualty Loss
Petitioner argues that he may nevertheless deduct the
$90,000 payment under section 165(c)(3) or section 212. Section
165(a) allows taxpayers to deduct losses sustained during the
taxable year which are not compensated or reimbursed by insurance
or otherwise. There are limits on the deductibility of losses
incurred by individuals. Under section 165(a)(3) such losses are
allowable only if they are incurred in profit-seeking activity or
arise from casualty or theft. Section 212 permits an individual
to deduct all ordinary and necessary expenses paid or incurred
for the production or collection of income, for the management,
conservation, or maintenance of income-producing property, or for
the determination, collection, or refund of any tax.
We are unpersuaded by petitioner's arguments. Simply put,
petitioner repurchased certain personal property from the Police
Department, in lieu of its forfeiture, and a deduction is not
allowable for property forfeited in connection with illegal
narcotics activity. See, e.g., Schad v. Commissioner, 87 T.C.
609, 623 n.4 (1986), affd. without published opinion 827 F.2d
774 (11th Cir. 1987); Holmes Enters., Inc. v. Commissioner,
69 T.C. 114, 116-117 (1977); Holt v. Commissioner, 69 T.C. 75,
79 (1977), affd. per curiam 611 F.2d 1160 (5th Cir. 1980);
Fuller v. Commissioner, 20 T.C. 308 (1953), affd. 213 F.2d 102
(10th Cir. 1954); Vasta v. Commissioner, T.C. Memo. 1989-531;
Mack v. Commissioner, T.C. Memo. 1989-490; Farris v.
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