Casualty Theft Loss

[WhiteOleander]

I have a new client coming in that says he lost over 50,000 in Metroploitan Debenture bonds.
He says he has a letter from J.K. Harris that says he can take this loss back 6 years as an ordinary loss under the Casualty/Theft loss section 165C.

Has anyone heard of this? He says that it is a theft because the "bigwig" stole the money.

Thanks

[DaveO]

It may be an ordinary loss but I can't find anything regarding a 6 year carry back. I have seen some pretty wild opinions from JK Harris though. Here is a link to IRC 165

http://www.fourmilab.ch/ustax/www/t26-A-1-B-VI-165.html

[jainen]

He says that JK Harris says

He says that JK Harris says? Well, I don't know what that six years is about, but a company mismanaged into bankruptcy is not an identifiable event that is sudden, unexpected, or unusual. It's an ordinary risk of any investment and she has a capital loss on her bonds.

I'm sorry that so many people got hurt, but it isn't a theft when you give them the money willingly and later the note loses value. Why, every bank in the world lends out many times the amount of their actual deposits, hoping that investors will not lose faith in them.

[Unregistered]

Was Registered

I disagree it can be a casualty/theft loss if the action that caused the value to become 0 was theft. You get it as ordinary. The best recent one I saw in the land of 10,000 taxes was a church organization issuing bonds at like 15+%. The original funds were stolen by the minister the new bonds were trying to pay the old ones interest and finally the house of cards blew down and fraud charges were bought against the minister. I had one client who had gotten in on it at the end. She was so embaressed she had fallen for it that she was having trouble telling me about it. $15,000 @ 18% the note said. If it is too good to be true it is probably not true. The minister claimed if the feds had not frozen his assets he could have paid them back. She go a casulty/theft loss.

[Bees Knees]

Under items NOT deductible as a casualty or theft loss, TTB page 4-20 says, “The decline in value of publicly traded stock due to disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. However, if the stock is sold for a loss, the loss is deductible as a capital loss.”

This statement is supported by IRS Pub 547, page 3 under “Decline in market value of stock.”

It should be pointed out, though, that the Pub only mentions publicly traded stock. It is silent in regards to other types of investments, although I don’t know why that would make any difference.

[Unregistered]

"publicly traded"

I agree Bees, but that narrows the population to a few....