                       T.C. Memo. 2001-97



                     UNITED STATES TAX COURT



                HAROLD A. JOHNSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15905-99.                   Filed April 24, 2001.


     Harold A. Johnson, pro se.

     Randall B. Pooler, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     ARMEN, Special Trial Judge:   Respondent determined a

deficiency in petitioner’s Federal income tax for 1998 in the

amount of $2,111.

     The issue for decision is whether petitioner is entitled to

a deduction under section 165(c)(3) for a casualty or theft loss
                                - 2 -

attributable to the foreclosure of his personal residence.1

                          FINDINGS OF FACT2

      Some of the facts have been stipulated, and they are so

found.    Petitioner resided in Brunswick, Georgia, at the time

that his petition was filed with the Court.

A.   Purchase of the Merritt Island Property

      In 1977, petitioner purchased a single-family house located

at 1170 Outrigger Drive, Merritt Island, Florida (the Merritt

Island property).    Petitioner purchased the Merritt Island

property for $38,500 and financed it by a 30-year purchase money

mortgage for $36,000.3   Petitioner used the Merritt Island

property as his personal residence.

B.   Foreclosure of the Merritt Island Property

      In or about 1988, a mortgage foreclosure proceeding was

commenced in the Brevard County, Florida, circuit court (the

Brevard County court) in respect of the Merritt Island property.




      1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 1998, the taxable year in
issue.
      2
        At trial, we deferred ruling on certain evidentiary
objections relating to relevancy that the parties reserved in the
stipulation of facts. We now overrule those objections.
      3
        It would appear that the Merritt Island property was
subsequently encumbered with a second mortgage. However, the
record does not disclose either the amount or the nature or
purpose of the loan for which that mortgage was given.
                               - 3 -

      On July 22, 1988, Judge Charles M. Harris (Judge Harris) of

the Brevard County court issued an order foreclosing on the

Merritt Island property.   Later that year petitioner vacated the

premises.

      At the foreclosure sale, the Merritt Island property was

sold for $49,000.   Thereafter, a certificate of title was issued

to the purchaser.

C.   Collateral Litigation Involving the Merritt Island Property

      Petitioner participated in the foreclosure proceeding.

However, he failed to timely challenge the July 22, 1988,

foreclosure order, allegedly because Judge Harris’ judicial

assistant, Penny Cooper (Ms. Cooper), incorrectly dated the

order.   According to petitioner, he did not discover the alleged

error until after the applicable appeal period had expired.

      In March 1994, nearly 6 years after the July 22, 1988,

foreclosure order was issued, petitioner commenced an action

against Judge Harris and Ms. Cooper in the Volusia County,

Florida, circuit court (the Volusia County court).   Petitioner

alleged that at the time the foreclosure order was issued, a

nonfinal order was pending on appeal before the Fifth District

Court of Appeal, the pendency of which served (in petitioner’s
                                 - 4 -

opinion) to divest Judge Harris of jurisdiction to issue the

foreclosure order.4

     The Volusia County court dismissed petitioner’s action with

prejudice.   The district court of appeal affirmed the dismissal.

See Johnson v. Harris, 645 So. 2d 96 (Fla. Dist. Ct. App. 1994).

In affirming the dismissal, the court of appeal stated that

“Judge Harris still had subject matter jurisdiction in the case

even while the nonfinal order was on appeal.”    Id. at 98.

     Not satisfied with the result in Johnson v. Harris, supra,

petitioner filed a petition for a writ of prohibition.   The court

of appeal denied the petition.    See Johnson v. Circuit Court, 686

So. 2d 723 (Fla. Dist. Ct. App. 1997).    In doing so, the court of

appeal stated, in part, as follows:

     Since 1988, the petitioner has argued that the
     [foreclosure] judgment was entered at a time when the
     trial court did not have jurisdiction. This is at
     least the fifth time that he has made this same
     argument to this same court. * * * Under Florida Rule
     of Appellate Procedure 9.130(f), trial courts are
     divested of jurisdiction only to the extent that their
     actions are under review by an appellate court, and the
     lower court has jurisdiction to proceed with matters
     not before the appellate court. * * * [T]his court has
     already determined that the trial court had
     jurisdiction to enter the [foreclosure] order. Johnson
     v. Harris, 645 So.2d 96 (Fla. 5th DCA 1994). We will
     not revisit this issue again.1
     ____________
     1
       The issue was previously argued in this court in
     Johnson v. Lomas & Nettleton Co., No. 89-1136, 557
     So.2d 48 (Fla. 5th DCA 1990); Johnson v. Harris, No.


     4
        The nonfinal order was an order dismissing petitioner’s
mother as a party to the foreclosure proceeding.
                               - 5 -

      94-1416, 645 So.2d 96 (Fla. 5th DCA 1994); Johnson v.
      Lomas & Nettleton Co., No. 95-1207, 670 So.2d 963 (Fla.
      5th DCA 1996); Johnson v. Circuit Court, Eighteenth
      Judicial District, No. 95-3319 (Fla. 5th DCA, Feb. 8,
      1996) (petition dismissed by unpublished order). It
      has also been argued in the Florida Supreme Court in
      Johnson v. Fifth District, No. 86,071, 662 So.2d 342
      (Fla. 1995) and Johnson v. Fifth District, No. 84,491,
      649 So.2d 869 (Fla. 1995).

      In or about August 2000, petitioner filed a purported trust

indenture with the clerk of courts of Brevard County, Florida.

This document purports to convey the Merritt Island property from

petitioner as settlor to petitioner as trustee on the ground that

“the [July 22, 1988] foreclosure order was entered without

jurisdiction and therefore VOID”.

      At the time of trial of the present case, petitioner was a

party in a quiet title action regarding the Merritt Island

property.

D.   Petitioner’s Income Tax Returns

      In or about January 1997, petitioner submitted an amended

income tax return, Form 1040X, for 1995.   On the Form 1040X,

petitioner claimed a $70,000 deduction in respect of the Merritt

Island property based on “judicial theft of real estate”.    In

support of the deduction, petitioner stated that the “trial court

did not have jurisdiction to enter a final judgment” and that the

“foreclosure judgment was void for lack of jurisdiction”.5


      5
        In support of the claimed deduction, petitioner also
attached 1995 Form 4684, Casualties and Thefts, to the Form
                                                   (continued...)
                                - 6 -

Petitioner used the deduction to offset previously reported

taxable income in the amount of $10,703.

      On his 1996 Form 1040, U.S. Individual Income Tax Return,

petitioner claimed a carryover loss in the amount of $59,287 in

respect of the Merritt Island property.6   Petitioner used the

carryover to completely offset his reported income for that year.

      On his 1997 income tax return, Form 1040, petitioner claimed

a carryover loss in the amount of $29,947 in respect of the

Merritt Island property.   Petitioner used the carryover to

completely offset his reported income for that year.

      On his 1998 income tax return, Form 1040, petitioner claimed

a carryover loss in the amount of $25,811.21 in respect of the

Merritt Island property.   Petitioner used the carryover to

completely offset his reported income for that year.

E.   The Notice of Deficiency

      Respondent determined a deficiency in petitioner’s income

tax for 1998.   The deficiency is attributable solely to the

disallowance of the $25,811.21 carryover loss claimed by


      5
      (...continued)
1040X. It would appear that the amount of the claimed loss
represented petitioner’s estimate of the then fair market value
of the Merritt Island property.
      6
        This amount represents the difference between $70,000,
the amount of the casualty or theft loss claimed on the Form
1040X for 1995, and $10,703, petitioner’s taxable income for that
year. Arithmetically, the difference between these two amounts
is $59,297. The amount claimed by petitioner on his 1996 return,
$59,287, reflects a $10 computational or typographical error.
                                 - 7 -

petitioner for that year in respect of the Merritt Island

property.7

                                OPINION

         As a general rule, section 165(a) allows as a deduction any

loss sustained during the taxable year and not compensated for by

insurance or otherwise.     However, in the case of an individual,

section 165(c) limits the deduction to:     (1) Losses incurred in a

trade or business; (2) losses incurred in any transaction entered

into for profit, even though not connected with a trade or

business; and (3) losses of property not connected with a trade

or business or with a transaction entered into for profit, if

such losses arise from fire, storm, shipwreck, or other casualty,

or from theft.

     In the present case, petitioner does not contend that the

foreclosure of the Merritt Island property constitutes either a

loss incurred in a trade or business or a loss incurred in a

transaction entered into for profit.      Indeed, the Merritt Island

property was petitioner’s personal residence; moreover,

petitioner has never claimed that the foreclosure of the property

was other than a theft.     We therefore analyze the propriety of

petitioner’s deduction under section 165(c)(3).

     For purposes of section 165, the term “theft” includes, but


     7
        The record is not clear whether respondent ever took any
action regarding the losses claimed by petitioner for 1995
through 1997 in respect of the Merritt Island property.
                                - 8 -

is not necessarily limited to, larceny, embezzlement, and

robbery.    Sec. 1.165-8(d), Income Tax Regs.   The term covers “any

criminal appropriation of another’s property to the use of the

taker”.    Edwards v. Bromberg, 232 F.2d 107, 110 (5th Cir. 1956);

see Johnson v. United States, 291 F.2d 908, 909 (8th Cir. 1961)

(losses from theft within the meaning of section 165 “consist

only of takings and deprivations in which the element of criminal

intent has been involved”).

     On his Form 1040X for 1995, petitioner described the

foreclosure of the Merritt Island property as a “judicial theft

of real estate”.8   However, at trial, petitioner testified as

follows:    “It’s a strange kind of loss.   It’s not really a theft

loss, because there was no criminal intent.     It’s a due process

theft.”

     Petitioner’s theory is that Judge Harris lacked jurisdiction

to issue the July 22, 1988, foreclosure order because of the

pendency of an appeal in respect of a nonfinal order; therefore,

in petitioner’s view, the foreclosure of the Merritt Island

property pursuant to such order gave rise to a “due process

theft”.

     We question whether there is any such thing as a “due

process theft” or, if there is, whether a “due process theft”


     8
        In his petition, petitioner described the foreclosure of
the Merritt Island property similarly, calling it a “judicial
theft of property”.
                               - 9 -

constitutes a theft within the meaning of section 165.   See

Johnson v. United States, supra at 909 (neither foreclosure by

bank on property to enforce its security interest nor bank’s

exercise of its right of setoff against funds on deposit

constituted a theft within the meaning of section 165); Rafter v.

Commissioner, 60 T.C. 1, 13 (1973) (neither seizure of automobile

pursuant to writ of attachment nor repossession of automobile

pursuant to a security interest constituted a theft within the

meaning of section 165; both the seizure and the repossession

were under color of law and no criminal intent was demonstrated),

affd. 489 F.2d 752 (2d Cir. 1974); see also Vance v.

Commissioner, 36 T.C. 547, 551 (1961); Washington v.

Commissioner, T.C. Memo. 1990-386, affd. without published

opinion 930 F.2d 919 (6th Cir. 1991).   However, we need not

decide either matter because the premise on which petitioner’s

theory rests is lacking.   In this regard we observe that the

Florida court of appeal has consistently held that Judge Harris

had jurisdiction to issue the July 22, 1988, foreclosure order

and that the Florida Supreme Court has declined to review that

ruling.   We need go no further.9


     9
        In 2000, petitioner filed an action against Sandy
Crawford, Clerk of Courts of Brevard County, Florida, in the U.S.
District Court for the Middle District of Florida, seeking to
declare the July 22, 1988, foreclosure order void. The District
Court dismissed petitioner’s complaint. On Feb. 16, 2001, the
U.S. Court of Appeals for the Eleventh Circuit affirmed the
                                                   (continued...)
                               - 10 -

     Equally unpersuasive is any contention that the foreclosure

of the Merritt Island property constitutes a casualty loss within

the meaning of section 165(c)(3).   A casualty loss is limited to

a loss caused by some sudden, unexpected, and external force such

as fire, storm, shipwreck or similar event or accident.    See

White v. Commissioner, 48 T.C. 430 (1967).   Petitioner’s loss of

the Merritt Island property by foreclosure was not caused by any

sudden, unexpected, or external force, but rather by his failure

to properly make payments on his mortgage loan.   See Washington

v. Commissioner, supra.

     Respondent’s disallowance of the deduction in question might

also be sustained for any number of other reasons, among them the

following:

     The sale of mortgaged property at a foreclosure sale is

treated as a sale or exchange from which the mortgagor may

realize gain or loss under section 1001.   See Helvering v.

Hammel, 311 U.S. 504 (1941).   In the present case, the facts

suggest that there may have been a gain on the foreclosure, and

not a loss, because the Merritt Island property was sold for an

amount greater than its original cost.10   See Emmons v.


     9
      (...continued)
dismissal in an unpublished opinion. See No. 00-14389-HH; see
also Siegel v. LePore, 234 F.3d 1163, 1172 (11th Cir. 2000).
     10
        There is no persuasive evidence in the record regarding
the cost of any improvements that petitioner might have made to
                                                   (continued...)
                              - 11 -

Commissioner, T.C. Memo. 1998-173.     In any event, even if a loss

were realized on foreclosure, the loss would not be deductible

because the Merritt Island property was petitioner’s personal

residence.   See Quinn v. Commissioner, T.C. Memo. 1983-485; secs.

1.165-9(a), 1.262-1(b)(4), Income Tax Regs.

     In view of the foregoing, we hold that petitioner is not

entitled to any carryover of a casualty or theft loss in respect

of the Merritt Island property for the year in issue.

Respondent’s determination is therefore sustained.

     To give effect to the foregoing,



                                           Decision will be entered

                                     for respondent.




     10
      (...continued)
the property prior to the foreclosure.    See also supra note 3.
