- 12 - as a deduction under section 165(a), a loss must be evidenced by closed and completed transactions, fixed by identifiable events, and * * * actually sustained during the taxable year.” An essential inquiry under the “closed transaction” concept is whether, in the year the deduction is sought, there exists a substantial possibility that the alleged losses could be recouped by actions against responsible third parties or otherwise. E.g., Ramsay Scarlett & Co. v. Commissioner, 61 T.C. 795, 807 (1974), affd. 521 F.2d 786 (4th Cir. 1975). When such a claim exists, no portion of the loss with respect to which reimbursement might be received is sustained until it becomes reasonably certain that reimbursement will not be received. Sec. 1.165-1(d)(2)(i), Income Tax Regs. B. Reasonable Prospect of Recovery The existence of a reasonable prospect of recovering from litigation is determined by the facts and circumstances of each case. Boehm v. Commissioner, 326 U.S. 287, 292-293 (1945). The determination is based primarily on objective evidence, Ramsay Scarlett & Co. v. Commissioner, supra at 812, but the taxpayer's subjective belief as of the close of the taxable year also is a relevant factor, Boehm v. Commissioner, supra at 292-293. The loss deduction need not be postponed if the potential for success of a claim is remote or nebulous. Ramsay Scarlett & Co. v. Commissioner, supra at 811. Also, where the financial condition of the person against whom a claim is filed is such that actualPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011