A recent Tax Court case has highlighted the importance for individual taxpayers in determining the “discovery year” for the purpose of taking a theft loss deduction. In Giambrone v. Commissioner, the Tax Court held that the taxpayers were not entitled to a theft loss deduction because they did not claim the deduction in the year they discovered the illegal scheme giving rise to the deduction. See Giambrone v. Commissioner, TC Memo 2020-145 (10/19/2020).
Pursuant to I.R.C. § 165(c), an individual taxpayer can deduct an uncompensated loss—even one not connected with a trade or business or a transaction entered into for profit—if such loss arises from a theft. Generally, a theft loss is treated as sustained during the tax year in which the taxpayer discovers such loss. See I.R.C. § 165(e).
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