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petitioner was operating an illegal gambling enterprise in 1999.
Thus, the deduction asserted by petitioners falls conceptually
within the ambit of section 165(a) and (c)(1). Courts have
consistently found that a loss deduction will be denied, however,
where the deduction would frustrate a sharply defined Federal or
State policy. See, e.g., Wood v. United States, 863 F.2d 417,
420-422 (5th Cir. 1989); United States v. Algemene Kunstzijde
Unie, N.V., 226 F.2d 115, 119-120 (4th Cir. 1955); Fuller v.
Commissioner, supra at 105-106; Blackman v. Commissioner, 88 T.C.
677, 682-683 (1987), affd. without published opinion 867 F.2d 605
(1st Cir. 1988); Holmes Enters., Inc. v. Commissioner, supra at
117-118; Holt v. Commissioner, supra at 79-81; Murillo v.
Commissioner, T.C. Memo. 1998-13, affd. without published opinion
166 F.3d 1201 (2d Cir. 1998); Bailey v. Commissioner, supra; Mack
v. Commissioner, supra; Farris v. Commissioner, supra; Hopka v.
United States, 195 F. Supp. 474, 477-483 (N.D. Iowa 1961); see
also King v. United States, 152 F.3d 1200, 1202 (9th Cir. 1998);
Standard Oil Co. v. Commissioner, 129 F.2d 363, 370-371 (7th Cir.
1942), affg. 43 B.T.A. 973 (1941).
Respondent contends that petitioners should not be allowed a
loss deduction for the cash that petitioner forfeited to the
State of South Carolina because the allowance of such a deduction
would frustrate South Carolina’s sharply defined policy against
illegal gambling. Petitioners assert, without citation of
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