Press Releases
Tax Treatment For Theft Losses A Well-Kept Secret
The advantageous tax treatment available for theft losses related to a non-business, for-profit transactions, is one of the best-kept Internal Revenue Code secrets, according to Bart Siegel, an independent investment and tax expert retained by JK Harris 165 Services, LLC.
JK Harris 165 Services, LLC, is a division of JK Harris and Company, the nation's largest tax resolution firm.
According to Siegel, instead of taking a loss using the more familiar IRC § 1211 capital loss treatment, commonly at the rate of 15 percent, victims of investment fraud may qualify to reduce their ordinary taxable income, which may be taxed at rates up to 35 percent, by using the IRC § 165(c)(2) theft-loss provision. Siegel says they may even be able to recapture previously paid taxes, and/or avoid future taxes.
"Losses due to theft, not related to a non-business, for-profit transaction, are still deductible under § 165, but they do not enjoy some of the beneficial aspects of a §165(c)(2) loss," said Siegel, who is a Certified Financial Planner, CPA and Certified Fraud Examiner. "Many tax practitioners are unfamiliar with the special tax privileges allowed under §165(c)(2)."
Siegel says that tax practitioners may become intimidated by the relatively high burden of proof required to demonstrate that the loss is eligible for this treatment. Tax preparation software often does not adequately address this deduction. Losses that qualify for tax treatment under IRC §165(c)(2) frequently triggers IRS oversight. As a result many tax practitioners defer to the more familiar IRC § 1211 capital loss treatment to the detriment of their clients.
For IRC § 165 to be applicable, Siegel cautions, there must have been a specific intent to defraud. The taxpayer needs to have purchased the investment from the person, or agent of the seller, or entity, who made the misrepresentation, or committed the malfeasance. The theft loss is deductible in the year the theft is discovered by the taxpayer, and determined to be unrecoverable.
For more information on IRC 165, go to www.165services.com.