Substantiation and Reconstruction of Records –
We all know that in an exam situation the IRS is all about records. In the case of a casualty or disaster the rules are relaxed slightly. The IRS is aware that in most cases when a major casualty occurs there is a good chance that the records you would normally use for substantiation are victim of the casualty. The IRS has several great resources out there to help in this event including Publications 584, 584B, and 2194 as well as a Disaster Assistance Hotline (1-866-562-5227).
Of course, the best records are a listing and pictures or videos of your property kept off site and updated regularly. And some clients, especially those that have been through this or Read More
Ponzi Schemes –
The United States Securities and Exchange Commission (SEC) defines a “Ponzi Scheme” as follows:
The schemes are named after Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. At a time when the annual interest rate for bank accounts was five percent, Ponzi promised investors that he could provide a 50% return in just 90 days. Ponzi initially bought a small number of international mail coupons in support of his scheme, but quickly switched to using incoming funds from new investors to pay purported returns to earlier investors. Read More
Calculation of Casualty/Theft Gains or Losses –
Once you have determined that you have an actual casualty or theft you must calculate the taxable effect of the event. These calculations are done on Form 4684 in Section A for personal use property, Section B for business/investment use property and Section C for Ponzi Scheme losses. It is possible to have a taxable gain on a casualty or theft. There are several pieces of information you will need to make these calculations regardless of the type of property.
1. Description of the property (type, location and acquisition date).
2. The type of event (casualty fire, hurricane, theft, etc.) Read More
What is Not a Casualty/Theft –
Things that do not by their nature qualify as a casualty generally do not satisfy the “sudden, unexpected, and unusual” requirement. These include but are not limited to:
1. Accidental breakage under normal conditions
2. Damage due to a family pet (Dyer v. Comm’r, T.C. Memo. 1961-141)
3. Any act of willful damage by the taxpayer or someone on behalf of the taxpayer.
4. Damage due to poor construction issues that are the underlying cause of the damage due to a sudden, unexpected or unusual event. (Portman v. U.S., 683 F.2d 1280 (9th Cir. Read More
What is a Casualty/Theft –
Normally, a casualty occurs when a taxpayer’s property is damaged as the result of a storm, fire, accident, natural disaster, or other similar event. A casualty loss is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, and unusual. This includes flooding, even if there is no flood insurance coverage, as long as it meets the unexpected and/or unusual definition. (Rev. Rul. 72-592 and IRC §165(h))
IRC §165(c)(3) provides an abbreviated listing of the types of casualties that are commonly allowed for deductions and the courts, in some of the cases listed here, have expanded that Read More