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this case because we are dealing with a forfeiture that does not
qualify as an ordinary and necessary business expense under
section 162. Furthermore, the allowance of a loss deduction in
this case would undermine the impact of South Carolina’s sharply
defined policy against illegal gambling. Accordingly, Sullivan
and Tellier are inapposite.
In Grossman & Sons, Inc. v. Commissioner, supra, we
considered a situation in which a taxpayer sought a deduction for
the amount that it had paid to the United States in settlement of
a proceeding under the False Claims Act, 31 U.S.C. secs. 231-233
(the 1952 version). After examining the record of the settlement
negotiations and the settlement agreement between the United
States and the taxpayer, we concluded that this payment was made
to reimburse the Government for its damages for breach of
contract and was not a penalty or forfeiture. We also examined
the False Claims Act and concluded that the Act was partly
remedial and compensatory in nature and partly punitive. Based
upon that conclusion, we rejected the argument that no amounts
paid or incurred in satisfaction of claims of the United States
under the False Claims Act, whether by judgment or by settlement,
were deductible because of public policy. Accordingly, we
allowed the taxpayer to deduct the settlement amount as an
ordinary and necessary business expense under the pre-1969
version of section 162.
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