Casualty (Theft) Loss: Decrease in Fair Market Value
Taxpayers, who have been defrauded, may be eligible for a tax loss deduction for their fraud damages if the fraud is considered theft under their state’s law (see Gerstell v. Commr. 46 T.C. 161 (1966)).
The IRS has published detailed guidelines for Casualty (Theft) Losses which include: Decrease in Fair Market Value
Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts.
The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property’s fair market value immediately before and immediately after the casualty or theft.
FMV of stolen property. The FMV of property immediately after a theft is considered to be zero since you no longer have the property.
Example. Several years ago, you purchased silver dollars at face value for $150. This is your adjusted basis in the property. Your silver dollars were stolen this year. The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. Your theft loss is $150.
Recovered stolen property. Recovered stolen property is your property that was stolen and later returned to you. If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property’s adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. Use this amount to refigure your total loss for the year in which the loss was deducted.
If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. But report the difference only up to the amount of the loss that reduced your tax. For more information on the amount to report, see Recoveries in IRS Publication 525.
Credit Suisse (Casualty Loss)
Investors at four high-end luxury resorts have filed a class action lawsuit against Credit Suisse and Cushman & Wakefield, contending they conspired to inflate the value of property so that they could take them over.
In the Complaint, the Plaintiff’s lawyers contend that Credit Suisse and Cushman & Wakefield conspired by setting up a Cayman Islands branch to circumvent a federal law on real estate appraisals. The Plaintiff alleges they inflated the value of resorts and made millions of dollars in fees on loans against the property. Credit Suisse knew the resorts would most likely default under the weight of inflated values which would allow the bank to take ownership of each on the behalf of the Creditor.
For taxpayers who have been defrauded, they may be eligible for a tax loss deduction for their fraud damages if the fraud is considered theft under their state’s law (see Gerstell v. Commissioner 46 TC 161 (1966)). The tax loss deduction may be carried back for prior years for tax refund, or carried forward for future years for tax free income up to the amount of the tax loss.
See article, Credit Suisse is Accused of Defrauding Investors in 4 Resorts
The New York Times, January 5, 2010.
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