Academic journal article Journal of Accountancy

Two out of Three Not Good Enough

Academic journal article Journal of Accountancy

Two out of Three Not Good Enough

Article excerpt

The Tax Court ruled that a taxpayer was not entitled to claim a theft loss where he failed to show he had no reasonable chance of recovering his stolen money during the tax year in question.

From 1999 to 2001 Dominick Vincentini, a resident of Michigan, was involved with Anderson Ark, an offshore money laundering operation, in a phony investment scheme to generate artificial tax losses. As a result, Vincentini claimed a $907,470 partnership loss on his 1999 tax return. In 2002 in California and 2004 in Washington state, the operators of Anderson Ark were convicted of numerous federal criminal charges including money laundering, tax fraud, mail fraud and wire fraud. In 2005 the Washington court ordered these individuals to pay restitution to the "investors" including Vincentini. See U.S. v. Keith E. Anderson et al., docket no. 02-cr-423, Western District of Washington (aff'd in part and remanded in part, 9th Cir. 2006).

In 2003 Vincentini received a deficiency notice from the IRS denying the partnership loss deduction. He appealed to the Tax Court. In 2006 while his case was pending, Vincentini filed an amended return for 1999 claiming a theft loss from the investment in Anderson Ark in either 2001 or 2002, which he carried back to 1999. The IRS rejected the amended return, since the tax year was before the Tax Court. The taxpayer then acknowledged he was not entitled to the partnership loss but petitioned the court to allow him to amend his petition to include the theft loss.

The Tax Court originally denied the amended petition. However, at trial the judge reversed the decision and allowed the taxpayer to argue for the theft loss, since the IRS was not prejudiced by allowing the court to consider the issue. Round one to the taxpayer.

The government argued that Vincentini did not suffer a theft loss. …

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