On Provident, I don’t see anything that makes it seem like a theft loss to me yet. It may be, and I might just be too conservative, but the way I am looking at it right now is it’s still in bk as far as I can tell when it comes out looks like a capital loss to me. I don’t think that will happen this year. As we get close to the end of the 45 days if you don’t find something to buy I would certainly consider this something that might be a better option than paying the tax. However I am not sure it is even a good Hail Mary.
Ditto for Desert Cap.
Here are two links, took me three minutes to find by Googling the company. They may give you some insight. With taxes, just because someone gets a refund the IRS is not saying that it is a correct refund. It might seem hard to believe but they don’t check to see if an amended return filed to claim a refund is correct, at least not very often.
Here’s the deal with this company. I have talked to them and know their way of operating. An amended return which is what they do is the only type of return where a preparer can charge a contingent fee. It happens that I reviewed some returns for a potential new client yesterday. He had used this service. In 2008 he lost a property in foreclosure and deducted a loss of $198,000 from the documents he showed me appeared to be correct. Recently he went to this company and they amended the 2008 return claiming an additional $650,000 which resulted in about $100,000 of refunds. I don’t know the exact percentage that they get but I have heard it is 30%. I didn’t feel I could ask the client at this point. Let’s assume that the percentage is 70% so the client gets $70,000 and the company gets $30,000.
Everyone is happy? Well for now. The problem is that the amended return is not right the client doesn’t have a $650,000 loss. The loss was $198,000. The $452,000 difference is money that represented a gain on the sale of a previous property which was deferred in 1031 exchange. Since it was not taxed in that transaction it is not considered a loss. That is black and white, no question about it. I actually called and discussed a similar case with this company. The difference was the case I discussed was related to a client who had not done a 1031. They agreed that loss was limited to their basis less any recovery, which is a fancy way to describe what I said above.
Even if you said that is BS the guy lost the money he should get the deduction you would be wrong but if you took that track then I think you would have to agree that the loss could not be more than what he invested, $650,000 right? Well the total loss this guy claimed is $848,000. This company’s only incentive is to get the biggest refund so they collect the biggest fee possible. BTW, there was no attorney opinion attached to any of the amended returns or paperwork that I saw. I don’t remember the exact explanation on the amended return but it was something like “the taxpayer lost money”.
Bottom line, you are right I am too conservative. If the IRS comes back and looks at this fellow’s returns, which they have a long time to do because I think they can make a case for fraud, it is the taxpayer who will be on the hook. This company will be gone by the time that happens. If I have a situation where I think there is a gray area and I believe I could tell the IRS with a straight face that I believe the position I am taking is correct even if the position might not be correct, I will. In some cases this requires disclosure to the IRS and that is a factor we have to consider but basically yes I will take that position. However, I am not aggressive enough to just flat out lie for a client. Saying something is okay because someone else did it and didn’t get caught doesn’t make it right. It is like saying it is okay to drive 90mph on the freeway because my uncle did it and he didn’t get a ticket. Just cause your Unc didn’t get a ticket doesn’t mean you can’t end up in jail or 100% fraud penalty.
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