Telynx (fka TLYN)

[fringe_remnant]

Posted by: The-Raging-Idiot
In reply to: A deleted message Date:2/22/2007 6:06:48 AM
Post #3287 of 3290

In cases involving stock purchased on the open market, the courts have consistently disallowed theft loss deductions relating to a decline in the value of the stock that was attributable to corporate officers misrepresenting the financial condition of the corporation, even when the officers were indicted for securities fraud or other criminal violations. In Paine v. Commissioner, 63 T.C. 736, aff’d without published opinion, 523 F.2d 1053 (5th Cir. 1975), the taxpayers claimed a theft loss deduction for a decline in value of stock stemming from misrepresentations of the financial status of the corporation by corporate officials. The court noted that the taxpayers did not purchase the stock from the corporate officers who made the misrepresentations, but on the open market. In MTS International Inc. v. Commissioner, 169 F.3d 1018 (6th Cir. 1999), an individual taxpayer sold at a loss stock that was acquired on a public stock exchange and argued that the substantial decline in value was due to criminal conduct by the corporation’s officers. The Sixth Circuit concluded that the loss was not a theft loss. See also Crowell v. Commissioner, T.C. Memo. 1986-314; DeFusco v. Commissioner, T.C. Memo. 1979-230; Barry v. Commissioner, T.C. Memo. 1978-215; and Rev. Rul. 77-17, 1977-1 C.B. 44.

Accordingly, the Service will disallow a deduction for a theft loss under § 165(a) relating to a decline in the value of stock that was acquired on the open market for investment. If the stock is sold or exchanged or becomes wholly worthless, any resulting loss is a capital loss.

DRAFTING INFORMATION
The principal author of this notice is Norma Rotunno of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this notice, please contact Ms. Rotunno at [phone] (not a toll-free call).

http://www.irs.gov/irb/2004-16_IRB/ar09.html#d0e985