Scam Loss Deductions Under IRC Section 165: Did Your Client Fall for the Preffered Fraud Under the Law?

Overview

This course provides CPAs specializing in tax with a comprehensive understanding of the complex rules governing the deductibility of losses arising from scams under Internal Revenue Code (IRC) Section 165. With the prevalence of sophisticated fraudulent schemes, tax professionals must navigate the intricate legal framework, particularly in light of the significant changes introduced by the Tax Cuts and Jobs Act (TCJA). The TCJA has largely suspended deductions for personal theft losses for tax years 2018-2025, making the proper classification of a loss under IRC §165(c)(2) as arising from a “transaction entered into for profit” the primary avenue for deductibility for many victims. Drawing on foundational principles, specific theft loss rules, the impact of the TCJA, and crucial IRS guidance like Chief Counsel Advice (CCA) 202511015 and the Madoff framework, this course will equip you with the knowledge to identify deductible losses, determine the correct timing and amount, navigate the “reasonable prospect of recovery” rule, and meet rigorous substantiation requirements. Attending is essential to effectively advise clients facing these unfortunate circumstances and ensure compliance in a rapidly evolving landscape of financial fraud.

Join Ed Zollars each month for a deep dive into the current happenings in the world of tax. This series program will meet nearly every month between May 2025 and April 2026.

Looking for the full series? Register at www.ascpa.com/taxtuesday

Highlights

• Foundations of Loss Deductions under IRC Section 165: General Rules and Limitations for Individuals (§165(a), §165(c))
• Defining “Theft” for Tax Purposes and its broad interpretation for scams
• Timing of Theft Loss Deduction: The Discovery Rule (§165(e)) and the “No Reasonable Prospect of Recovery” Standard
• Calculating the Amount of Deductible Theft Loss
• Profound Impact of the TCJA (§165(h)(5)) on suspending personal theft losses and the limited exceptions
• In-depth Analysis of the Critical “Transaction Entered Into for Profit” Test (§165(c)(2)) post-TCJA
• Navigating IRS Guidance: Key Insights from CCA 202511015 differentiating deductible investment scams from non-deductible personal scams (e.g., Romance, Kidnapping)
• Understanding the Madoff Framework (Rev. Rul. 2009-9, Rev. Proc. 2009-20, Rev. Proc. 2011-58) for Ponzi Schemes, including the optional safe harbor and its limitations for newer scam types
• Practical Considerations for CPAs: Determining the Discovery Year, Documenting No Reasonable Prospect of Recovery, Meeting Stringent Substantiation Requirements, and Proper Reporting on Form 4684

Designed For

Any accounting professional looking to stay ahead of tax changes impacting their organizations and clients.

Notice

Live, Interactive Webcast