Tax court rejects theft deduction loss

In a recent Tax Court ruling (McNely v. Comm’r, T.C. Memo. 2019-39), the Court held that a couple could not deduct theft losses of more than $400,000 that they alleged were incurred by their wholly owned S corporation in 2011 as a result of real estate fraud.

The Tax Court found that the S corporation did not have a subjective belief that there was no reasonable prospect of recovery as late as 2015 and, after reviewing both objective and subjective factors, concluded that the S corporation’s prospect of recovery was simply unknowable and nothing more than speculation and conjecture at the end of 2011.

For support in taking affirmative actions to establish deductibility for losses, contact a ShindelRock tax professional today.