What progress did you make in determining the Provident and Desert Capital loss for 2010? I know that my father already deducted his losses of Provident in 2010 I do think that you are being way too conservative. Here’s why: I did talk to the Fraud Recovery Group and they have been filing these as section 165 theft starting in 2009. Their filings are accompanied by a lawyer’s opinion of why it should be counted as a theft loss;

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.

http://taxfraudblawg.com/2010/04/19/fraud-recovery-group-sued-for-allegedly-manipulating-the-theft-loss-deduction/

 http://www.bbb.org/centralohio/business-reviews/unclaimed-funds-retrieval-services/fraud-recovery-group-in-worthington-oh-70005800

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. 

This blog is a collection of questions from clients and the answers.  The goal of the blog is not to answer the questions you might have.  Most times the answers are based on each client’s personal situation.  Please do not rely on this information to make important financial and tax decisions.  The advice presented here is presented to give examples of the type of information you get as a client of a true tax professional, like Ray Simmons and the preparers he employs.  Advice regarding similar issues for you should be based on your personal situation. 

Treasury Department Circular 230 Notice. “To ensure compliance with Treasury Department Circular 230, prospective clients are hereby notified that: any discussion of Federal Tax Issues contained or referenced to in this communication is not intended or written to be used and cannot be used by the prospective client or investor for the purpose of avoiding penalties that may be imposed on them under the Code.” Such discussion is written in connection with the promotion or marketing by Ray Simmons Corporation of the transactions or matters addressed in this correspondence.

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About taxdude8422

Basically I am just a tax nerd, have been all my life. However I have found the more open you are to opportunities the better off you will be in this world. That makes my what is know as an open networker on Linkedin, I will connect with anyone. I am not an expert on Linkedin by any means but one day when I was asking someone to connect I mentioned that I had just been refilled on invites. My new connect asked how I did that. I used that same line for the next month and got asked the same question four times. I started thinking there was a lot of little things it took my sometime to learn. Through this blog I plan to share some of those "Linked Secrets"
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