From Discovery to Deduction: Modern Theft Loss Rules Explained

Tax in Action: Practical Strategies for Tax Pros

Jeremy explores the complex world of theft loss deductions, examining how digital asset scams have renewed interest in these tax provisions under the Tax Cuts and Jobs Act. The episode breaks down the three key criteria for claiming theft losses, explains why timing of discovery matters more than when the theft occurred, and analyzes five modern scam scenarios from IRS Chief Counsel guidance including pig butchering schemes and romance scams. Jeremy concludes with a fascinating 1984 court case involving Civil War veterans' land rights that shows even tax court judges can disagree on fundamental questions of tax law.

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• (00:00) - Introduction: Digital assets spark new interest in theft losses
• (03:00) - The three types of losses under IRC Section 165
• (08:00) - Three criteria for claiming a theft loss deduction
• (13:00) - When discovery matters more than when theft occurred
• (19:00) - State law defines theft for federal tax purposes
• (25:35) - Simple disappearance is not theft
• (28:35) - Casualty losses vs theft losses: Key differences
• (30:35) - Stock declines don't qualify as theft losses
• (34:35) - Ponzi schemes get special safe harbor treatment
• (42:35) - Five modern scam scenarios from IRS Chief Counsel
• (54:35) - Reporting theft losses on Form 4684
• (57:35) - The Booth case: When smart judges disagree
• (01:03:35) - Wrap-up and final thoughts

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