Stephen D. Ruddel - Page 7

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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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