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Discussion
Loss Deduction
Section 165(a) allows a deduction for "any loss sustained
during the taxable year and not compensated for by insurance or
otherwise." In the case of an individual, the deduction is
limited to losses incurred in a trade or business or in any
transaction entered for profit or to certain theft or casualty
losses. Sec. 165(c). Courts consistently have disallowed loss
deductions where the deduction would frustrate a sharply defined
Federal or State policy. Wood v. United States, 863 F.2d 417
(5th Cir. 1989); Fuller v. Commissioner, 213 F.2d 102 (10th Cir.
1954), affg. 20 T.C. 308 (1953); Holmes Enterprises v.
Commissioner, 69 T.C. 114 (1977). The test of nondeductibility
is the severity and immediacy of the frustration resulting from
allowance of the deduction. Stephens v. Commissioner, 905 F.2d
667, 670 (2d Cir. 1990), revg. on other grounds 93 T.C. 108
(1989); Wood v. United States, supra.
Petitioner pleaded guilty to 10 counts of structuring cash
transactions in violation of Federal statutes, including 31
U.S.C. section 5324(3) (1988). The civil forfeiture of
petitioner's accounts was pursuant to 18 U.S.C. section 981 (1988
and Supp. II 1990) which provides that "Any property, real or
personal, involved in a transaction or attempted transaction in
violation of 5313(a) or 5234 of title 31, * * * , or any property
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