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EXECUTIVE KNAVERY DOESN'T GIVE STOCKHOLDERS A THEFT LOSS

March 25, 2004

The IRS today issued a notice (Notice 2004-27) informing taxpayers that they can't take a theft loss for a stock price decline caused by executive misbehavior:

   The Internal Revenue Service and Treasury
   Department are aware that some taxpayers 
   who acquired stock on the open market for 
   investment have been advised that they may 
   be able to deduct as a theft loss the decline 
   in market value of their stock caused by 
   disclosure of accounting fraud or other illegal 
   misconduct of the officers or directors of the 
   corporation that issued the stock. The 
   purpose of this notice is to advise taxpayers 
   that the Service intends to disallow such 
   deductions and may impose penalties under 
   § 6662.

The result isn't surprising. In fact, it's likely some folks saw this coming.

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