Today we hear from Jack in Oregon who wants to know, “If a co-trustee of a irrevocable trust converts trust assets for his own use, can the trust take a theft loss deduction on the trust tax return?”
Dear Jack,
That’s a crummy thing to do – steal from a trust.
And to make it worse, there’s no theft if you don’t report the theft to the authorities, is there?
There may be a taxable event that might cause the trust to be voided and/or penalties to be assessed against the trust and/or the trustees.
Then, you want to try to take a theft loss deduction?
From correspondence with IRS on other matters, they’ve made it clear, citing Tax Court cases, that IRS won’t accept theft losses, unless criminal charges are filed against the thief, and/or documentable attempts are made to recover the assets, including a lawsuit.
Consider contacting Bob Sommer’s the Tax Prophet to help you research your options and actions you can take. He’s a tax attorney and has some expertise in this area.
https://www.taxprophet.com/
Also, our expert readers may have some ideas. Stay tuned.
And remember, you can find answers to all kinds of questions about Trusts and all kinds of other tax issues, free. Where? Where else? At TaxMama.com
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