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in a trade or business, or (2) incurred in a transaction entered
into for profit, or (3) arise from a casualty or a theft. Sec.
165(c).
Laney began to work on R.K. in 1977. He bought the Island
in 1978, and applied for permits to develop the Island and make
it accessible. The Army Corps of Engineers turned him down in
1979. Laney sued in the Court of Claims in 1980. The Court of
Claims denied both sides’ summary judgment motions in 1981, and
the case was returned to the trial division of the Court of
Claims. Laney failed to make the principal payment on his
purchase-money mortgage, and Poppe, the then holder of the
mortgage note, foreclosed; the Florida court granted foreclosure
in 1983. Later in 1983 the Laney Corporation filed a chapter 11
bankruptcy petition. In 1984 this was converted to a chapter 7
proceeding; then Laney trading as the Laney Proprietorship filed
under chapter 7; then Laney was granted a discharge under chapter
7.
A. Loss From Theft
In order to be treated as a theft loss under section 165,
the loss must arise from a criminal appropriation of the
taxpayer’s property. Edwards v. Bromberg, 232 F.2d 107, 110 (5th
Cir. 1956); Horn v. Commissioner, 90 T.C. 908, 940 (1988);
Nichols v. Commissioner, 43 T.C. 842, 884 (1965). A seizure of
property by a government under color of legal authority is not a
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