I have recently publishing my 11th e-book, currently available on Amazon, The IRS and Defrauded Investors: Theft Tax Loss (2015).
The IRS tax rules are summarized as follows:
US Taxpayers who lose funds due to “fraud” may declare an income tax deduction for their theft loss in the tax year they discover the theft loss. For IRS audits, it is not required that the affected Taxpayer recover their “fraud losses” only that they pursue collection of their lost funds (by lawsuit, or otherwise). In the event the Taxpayer recovers any of their lost funds they must declare the recovery as income in the tax year received.
As an income tax planning strategy, a “theft loss” may generate: tax savings, tax refunds, tax-free income:
1) In 2015, the maximum California/Federal “blended tax rate” is approximately 55%. So if the fraud loss is $10m, the income tax savings may be as high as $5.5m;
2) Tax Refunds: The theft tax loss may be “carried back” for 3 years (by filing form 1040x for those tax years) with any income taxes paid ( during the 3 prior carry back years) subject to refund;
3) Tax-free Income: The Tax Loss for theft may be carried forward for up to 20 years, offsetting any taxable income, creating tax-free income up to the amount of the theft loss.
The tax opinion which I prepared to support the tax loss has been used for a multiple client matters. The biggest theft loss (worth $5m+) to the taxpayer (who was a famous musician) was audited by the IRS and based on tax opinion I submitted the audit was won and the taxpayer saved over $5m in taxes. (See enclosed testimonial below.)
Dear Gary, Per our conversation, I just wanted to thank you once again for working with us on our Theft & Casualty Loss which resulted in a very substantial tax savings in excess of $3.3 million and established an NOL of $4,529,103.00 after you wrote your Tax Opinion and advised us to file the lawsuits…We are thrilled that your work and strategy held up under IRS audit, and once again it confirms your brilliance in Tax Law! We are authorizing you to post this letter on your website and to send copies of of this writing to your clients. Warmest regards, B
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