Question

Here is a fact pattern. In this discussion, you tell me whether this is based on a real case, or whether I am making it up to prove a point.

John Notsoslick was working as a bank teller and attending college. He embezzled $30,000 from the bank to fund a drug deal, but planned to put the money back in the till before the bank noticed by using part of the profits from the drug deal. He gave the embezzled money to two accomplices who would use it to buy the drugs. When he met his crime partners they had neither the drugs nor the money and claimed they were robbed at gunpoint. Notsoslick winds up in prison and realizes his crime partners had ripped him off. When Notsoslick filed his tax return, he reports the $30,000 of stolen funds as taxable income and claimed a theft loss of $29,900, citing Section 165. Truth or Fiction? Would the IRS tax Notsoslick on the embezzled funds? Would they allow the deduction?

Answer 1

Part a) When Notsoslick filed his tax return, he reports the $30,000 of stolen funds as taxable income and claimed a theft loss of $29,900, citing Section 165.

This whole story seems to be fiction. As John Notsoclick is a College Student and works as bank teller so his company is not influenced by drug sellers or criminals. Moreover the consequences of doing so are very harsh which can impact his whole life and will ruin the career.

No Revenue Authority provides deduction on embezellement income or criminal income.This is basic common sense.So Filing tax return and claiming it as loss is quite fictitious.

Part b) Would the IRS tax Notsoslick on the embezzled funds

Under Internal Revvenue Code--Yes Embezzeled funds are taxable

Part c) Would they allow the deduction?

Under Internal Revvenue Code---No deduction is not allowed