Case: Taxpayer Not Entitled to Deduct Passthrough Loss From S Corporation After Criminal Conviction and Forfeiture (T.C. Memo) (IRC §165)

Taxpayer was not entitled to deduct a passthrough loss from his S corporation related to asset seizures resulting from his criminal conviction, the U.S. Tax Court held, affirming the IRS’s determination. Taxpayer, an individual, pleaded guilty to conspiracy charges involving bribery, fraud, and money laundering related to his work as a financial advisor. As part of his sentence, Taxpayer was ordered to forfeit approximately $2.2 million. The U.S. Marshals Service seized funds from bank accounts held by Taxpayer and his wholly-owned S corporation to satisfy the forfeiture order. The S corporation claimed a loss deduction for the seized funds, which ...