Theft loss deduction.

• Position: News & trends

With the increased occurrence of individuals falling victim to embezzlement schemes, the FTB offers this reminder on how to properly deduct these losses on income tax returns.

A taxpayer's ability to take a theft loss deduction is governed by IRC Sec. 165, which allows a taxpayer to deduct any loss sustained during the taxable year that is not compensated for by insurance or otherwise. A loss is treated as sustained during the taxable

year in which the taxpayer discovers the loss. However, if a taxpayer files a claim for reimbursement, then the amount and timing of the deduction require further analysis on a case-by-case basis.

When a taxpayer has a claim for reimbursement...