Treasury Report Claims that 82% of Investment Theft Loss Claims are Erroneous

Taxpayers and their preparers have very good reason to want to categorize losses as theft losses rather than investment losses. Theft losses are treated as ordinary losses and are deductible in the year they were incurred. A theft loss is deductible to the extent it exceeds $100 per loss event and to the extent it exceeds 10% of the taxpayer's adjusted gross income, while investment losses are treated as capital losses and are generally limited to the amount of capital gains plus $3,000.

Therefore, it's not surprising that the Treasury Inspector General for Tax Administration has found that Many Investment Theft Loss Deductions Appear to Be Erroneous:

Federal law ... provides taxpayers with tax relief for investment theft losses. The IRS estimates that more than 19,200 taxpayers filed Tax Year 2008 tax returns claiming a combined total of more than $8 billion in property income casualty and theft deductions.

Our review identified that taxpayers may be erroneously claiming investment theft loss deductions. ... TIGTA estimates that 1,788 (82 percent) of 2,177 taxpayers may have erroneously claimed deductions totaling more than $697 million, resulting in revenue losses totaling approximately $41 million.

The potential revenue loss estimate is conservative in that it only represents electronically filed tax returns for one year.

Because of slew of recent high profile Ponzi schemes involving thousands of taxpayers, the IRS has issued guidance on the tax aspects of losses from a Ponzi scheme and created a safe harbor under which investors can claim theft loss deductions.

For more information about the new theft loss rules, call our attorneys at (916) 488-8501.

No Comments

Leave a comment
Comment Information

Contact the Law Office of Williams & Associates

For more information about our tax law services, or to discuss your tax matter, call our Sacramento office at (916) 488-8501 or toll free at (800) 684-7147. You may also send us an inquiry via email.

Contact the Firm

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Office Location:

3600 American River Drive, Suite 135
Sacramento, CA 95864

Toll Free: 800-684-7147
Phone: 916-488-8501
Fax: 916-488-8196
Sacramento Law Office Map