Tax Court denies Anderson Ark mark's theft loss

[Quixote]

This is old news, but doesn't seem to have been mentioned here yet.

In a 12/8/2008 memo decision, the Tax Court denied a theft loss to Dominick Vincentini for 2001 because he had not proved that at the end of 2001 he had no hope of recovering the money he had paid to participate in the Andersom Ark schemes.

Dominick asserted that he knew that he had been robbed after the 2001 arrests of Anderson Ark promoters. The Court noted an inconsistency in that position.

/20/ Although we evaluate whether or not a reasonable prospect of recovery existed at the end of the year of discovery, we note that petitioner reported the theft loss deduction for the first time in 2006 when he sent respondent a Form 1040X, Amended U.S. Individual Income Tax Return, for 1999. At that time, the Washington District Court had already issued the amended judgments in a criminal case ordering the Anderson Ark defendants to pay petitioner $ 511,500 in restitution.

Dominick v. Commissioner, T.C. Memo. 2008-271, page 21

The Court did not, but I will, conjecture that Dominick didn't know he'd been robbed until it became clear in 2006 that the Tax Court was not going to allow his bogus $907,470 Anderson Ark partnership loss.

[LPC]

The 6th Circuit has affirmed the Tax Court, but it doesn't look like they were happy about it, concluding that "the Court must afford the Tax Court broad discretion under the clearly erroneous standard for each of these issues. Judging the evidence presented at trial through this lens, it cannot be said with firm conviction that a mistake has been made."

[jcolvin2]

The real problem with the Vincentini theft loss claim was the year of the claim. Vincentini probably invested in the AAA shelter in 1999 in order to shelter a high income. Taking the deduction in 1999 would have wiped out the additional tax and penalties being asserted by the IRS. If I remember correctly, most "investors" did not suspect that AAA was a Ponzi scheme until some time after the search warrants were executed on domestic AAA affiliates in 2001 or 2002, and probably didn't realize that they would recover virtually nothing until some time later. (It took the even the DOJ and all of its resources some time to track the money and realize that it was all gone.)