US Treasury Issues Guidance On Decreases In Stock Value Through Corporate Misconduct

by Glen Shapiro, LawAndTax-News.com, New York

29 March 2004

The US Treasury Department on Thursday issued a notice in conjunction with the Internal Revenue Service advising taxpayers that the IRS will disallow theft losses claimed with respect to decreases in the market value of stock, purchased on the open market, that may be attributable to corporate misconduct.

In a statement, the Treasury revealed that some taxpayers have been advised, in the media and elsewhere, that they may deduct as theft losses decreases in the market value of their stock caused by misrepresentations made by the corporate officials about the financial condition of the corporation, or other illegal misconduct of corporate officials.

However, it explained last week that a taxpayer is generally allowed to deduct uninsured losses from the theft of property in the year the theft is discovered, with state law governing whether a theft loss has occurred for federal income tax purposes.

“Shareholders who purchased stock of some high-profile corporations on the open market have suffered declines in the value of their investments as a result of misconduct by corporate executives. However, these losses are not theft losses under state law and therefore are not deductible theft losses for federal income tax purposes,” Acting Treasury Assistant Secretary for Tax Policy Greg Jenner stated.

The full text of the Treasury Notice Concerning Decrease In Stock Value Attributable To Corporate Misconduct can be found in the Tax-News Resources section.

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