Edman and Debbie Kay Hackworth - Page 14

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               In Grossman & Sons, Inc., the taxpayer settled a breach of             
          contract dispute with the Government and was allowed to deduct              
          the settlement amount as an ordinary and necessary business                 
          expense.  Unlike the facts of Grossman & Sons, Inc., petitioner’s           
          “payment” (i.e., forfeiture) to the State of South Carolina                 
          resulted from his violation of South Carolina’s gambling laws and           
          not from a settlement of a breach of contract dispute.                      
               In Edwards v. Bromberg, supra, the taxpayer sought a loss              
          deduction for the theft of his money.  The taxpayer had agreed to           
          provide money to another individual in order to bet on a “fixed”            
          horse race.  The individual absconded with the taxpayer’s money.            
          After deciding that there was no scheme to defraud anyone except            
          the taxpayer himself, the court allowed the deduction.                      
               Bromberg is also distinguishable.  Petitioner’s funds were             
          seized by the State of South Carolina in the enforcement of its             
          gambling laws.  The purpose of the seizure and forfeiture was to            
          cripple petitioner’s illegal gambling activities.  If a loss                
          deduction were allowed in this case, the Federal Government would           
          in effect be carrying a portion of the loss inflicted on                    
          petitioners by the State of South Carolina because of                       
          petitioner’s illegal activities.                                            
               Finally, petitioners contend that imposing a liability for             
          Federal income taxes on the cash that petitioner forfeited                  
          without allowing a loss deduction for the forfeited amount                  






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