Questions
Have you lost money as a victim of investment fraud?
The burden is on the taxpayer to prove investment theft and in turn that they’re eligible for a theft loss deduction. Although proving that case can be challenging, if successful, it could mean the qualification for significant tax benefits.
The benefits of using a professional firm such as 165 Services (165) for this determination are tremendous. By working with professionals in the industry and in partnership with the victims tax advisor, 165 properly documents the individuals right to take the deduction and then represents the client before the IRS in pursuit of approval.
Why would my investment loss be caused by theft?
If the sales process promoting the investment to the investor was misleading, unsuitable or in any other way violated securities and state laws, the loss could be caused by theft.
If an investment was made in a company that went bankrupt because of the illegal acts of corporate officers, are the investors entitled to a theft deduction?
Surprisingly, only maybe. Theft of investments usually requires the taxpayer to be the intended target to qualify. The illegal acts of company officers are generally targeted at the company, not the investor directly. This is as if someone were wounded by a ricocheted bullet intended for someone else. Although they were injured, they were not the target of the gunman. If an investment salesman misrepresented the investment and violated state law, the individual may be the target of theft. An investment industry expert can render an opinion whether an investor is a victim of theft, and eligible for the accelerated deduction.
If the theft took place years ago, how can I claim it now?
The taxpayer is entitled to deduct the loss in the year in which the taxpayer discovers that the loss was a result of theft and all reasonable means of recovery have been exhausted. A thorough analysis of the loss and circumstances will define the year of discovery.
What if I have deducted a portion of the loss as a capital loss?
The taxpayer may be able to deduct the balance as an ordinary loss in the year the taxpayer discovered that the loss was a result of theft, or go back and recharacterize the loss as a theft loss in the tax year it was originally declared. An analysis would be called for to determine what would bring a higher yield benefit for the taxpayer.
How do I know that the loss cannot be recovered?
Generally, independent experts are relied upon to opine the prospects of recovery.
If future recovery is possible, what can I deduct now?
The taxpayer can deduct an amount considered not reasonable to be recovered. A report by an independent expert in bankruptcy or collections provides analysis useful in this case.
How do I know that the cause of the loss is theft according to state law?
Every state has specific laws regarding theft and they are generally broad and protective. A legal expert should be depended on to determine if the loss is a theft in a particular state, and an independent investment expert can determine if your situation meets these standards.
Does the 10% exclusion of AGI apply to investment losses?
No. If the investment was of property held for income-producing purposes, the 10% exclusion and the $100 per item reduction do not apply.
What if I cannot use all the deductions in the year of discovery?
A theft deduction can be carried back three years and forward as far as 20 years. An alternative option would be to waive the clients right to go back three years and simply go forward the 20.
Are expert opinions necessary to support an investment theft deduction?
Although not required, expert opinions are highly recommended. The IRS can challenge issues that require legal and expert opinions including: Was the loss theft according to state laws? Was the taxpayer the intentional target of the theft? Can the loss be recovered? When was the theft discovered? Experts in securities law, criminal law, collections, and investment sales practices can provide opinions supporting the eligibility for the deduction. Lacking of proper responses could cause the deduction to be disallowed, resulting in financial penalties, alternative minimum tax expenses and interest expense.
Should I expect this deduction to be examined?
Absolutely. A theft loss deduction is novel and for the most part, agents are unfamiliar with their workings. Although no statistical study has been done, it’s estimated that in excess of 80% of 165 Services clients are examined in some fashion ranging from general exam, more detailed audit or full appeal.
Investment Fraud Situations
Too often investors find themselves asking, “Was my recent investment loss my fault or was I taken advantage of? Was I lied to? How could this have happened?” Unfortunately for some, the answer when it’s finally uncovered is devastating as their worst fears are realized. Below are just a few of the different methods used by perpetrators of investment fraud.