Melvin J. Laney and Carolyn A. Laney - Page 33

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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.                           
                  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                         
            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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