Level 3

IRA Theft - Loss Deduction

Forum|Forum|4 years ago
October 19, 2021
3 replies
15 views

I have a client that fell for online/telephone scam. Unfortunately, the scammer was able to gain control of her computer and withdrew almost $500,000 from her IRA. I am not quite sure how to report this for 2021. It seems that she will need to report the $500,000 withdrawal as income and then claim a casualty/theft loss on Form 4684. From there is appears that under Rev Proc 2009-20, she would qualify for a deduction of 95% of the loss. Does that sound correct and is there anything else that I am missing?

Lacerte Tax

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qbteachmt

Level 15

"is there anything else that I am missing?"

TCJA of 2017.

"The Impact of the Tax Cuts and Jobs Act on Casualty and Theft Losses

According to the IRS's publication 547 "Casualties, Disasters, and Thefts," "Personal casualty and theft losses of an individual sustained in a tax year beginning after 2017 are deductible only to the extent they're attributable to a federally declared disaster."3 By extension, this means human activities, such as terrorist attacks, theft and vandalism that are not declared federal emergencies by the President are also not covered."

Under what condition would the theft be deductible. in other words. It doesn't seem, for instance, that the money was "rolled" into a bogus investment.

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Terry53029

Intuit Community Champion

You say the thief withdrew the money from her IRA, so what happened to the money

IRonMaN

Level 15

Where is Paul Harvey when you really need him to tell us the rest of the story?

Slava Ukraini!

BobKamman

Level 15

Why do you consider this income? Because it's shown on a piece of paper? But we know that the Internal Revenue Code of 1986 enacts a tax on income, not on pieces of paper.

Let's say I'm walking down the street and see IronMan, who owes me $100 for a used anvil I sold him last week. He pulls out his wallet and starts to hand me a Benjamin. But a thief runs by and yanks it out of our hands just as the transaction is about to be completed. Do I have income? Do I have a deduction? Does he still owe me some money?

sjrcpa

Level 15

There's going to be a 1099-R for $500,000.

The more I know the more I don’t know.

IRonMaN

Level 15

If she does receive a 1099R, why not report it and then use a negative other income amount to back it off? Then add a nice statement to the return (that probably won't get read by the IRS on the first pass) saying the 1099R was generated but the taxpayer never received the funds due to some scumbag. If there is anyone deserving to get COVID and suffer a long and painful death from it, I think these are the people.

Slava Ukraini!

qbteachmt

Level 15

You asked about reporting this for 2021. Is there still time to report it under the CFPB 60-day rule?

https://www.dwt.com/blogs/financial-services-law-advisor/2021/06/cfpb-unauthorized-transfer-consumer-liability

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