Tax Court denies theft loss and upholds penalty over Turks and Caicos casino investment
Potts v. Commissioner, T.C. Memo. 2025-108, No. 14941-18, 2025 BL 370997, 2025 Tax CT Memo Lexis 114, Court Opinion
The Tax Court rejected a claimed section 165 theft loss tied to a Turks and Caicos casino investment and sustained a section 6662 accuracy-related penalty.
A taxpayer cannot claim a theft loss for funds paid to a selling shareholder where no theft under applicable foreign law is proven and the taxpayer was not the owner of any misappropriated funds.
Holding
The Tax Court held that Craig and Kristen Potts did not prove a deductible theft loss under section 165 related to their 2008 purchase of Carib Gaming shares.
The court found no theft under Turks and Caicos law, concluded that any alleged misappropriation would have been of VT Enterprises’ funds rather than the taxpayers’ property, and sustained a section 6662 accuracy-related penalty.
The decision will be entered under Rule 155.
Why It Matters
Confirms that theft loss claims turn on the law of the jurisdiction where the loss occurred and require proof of each statutory element.
Clarifies that purchasing existing shares from a seller doe…
