The Tax Court has ruled that a taxpayer’s poor investment decision doesn’t lead to a theft loss write-off. On a parishioner’s advice, a filer took funds from his IRA and bought stock in a company.
The firm delayed issuing stock certificates to him, so he feared he had been duped and hired a lawyer to recover the funds. Eventually, he got the certificates and not the return of funds (great attorney). The firm did poorly but never went bankrupt. If the company went bankrupt the loss could be claimed on Schedule D. The investor claimed a theft loss, but the Court said that no theft had occurred and he had failed to prove that the shares he received were valueless.
(Hawaii, TC Memo. 2011-34)