Adkins v. United States

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Determination of tax year for theft loss depends on multiple factors. The Adkinses invested in securities through a company that was actually operating a “pump and dump” scheme. At their 2000 peak, the Adkinses’ investments were valued at $3.6 million. In 2001, the value of their investments declined to $9,849. In 2002, the Adkinses, discovering the fraud, submitted a claim to the National Association of Securities Dealers. Their hearing was postponed pending federal indictments, which were handed down in 2004. While the charges were pending, in 2006, the Adkinses claimed a tax-year 2004 deduction for a $2,118,725 theft loss under 26 U.S.C. 165, with excess refund portions carried back over 2001– 2003. The IRS disallowed the Adkinses’ refund claims for all tax years but 2002. The Claims Court concluded that the Adkinses agreed, citing 26 C.F.R. 1.165-1(d)(3) because the Adkins had not shown that, in 2004, they could have “ascertained with reasonable certainty that they would not receive reimbursement of their losses.” The Federal Circuit vacated. Unless the plaintiff has chosen abandonment (or settlement or adjudication) as the factual predicate for their loss date, the existence of an ongoing lawsuit or arbitration is only one factor to be considered among many in determining the tax year for the loss. View "Adkins v. United States" on Justia Law

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