Taxpayers who suffer uncompensated losses may be able to claim a tax deduction, if they meet certain conditions.
December 10, 2020
For theft loss, the deduction must be taken for the year the loss was discovered. In 2007, two brothers founded a bank and raised capital by selling common stock in the bank. In 2010, the bank’s major shareholder (and chairman) was indicted on conspiracy and fraud charges. He was convicted in 2011. On their 2012 tax return, the brothers claimed a theft loss deduction related to the fraud. The IRS disallowed the deduction because the taxpayers failed to claim the loss in 2010, the year of discovery. The U.S. Tax Court agreed that the disallowance was proper. (TC Memo 2020-145)