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No sympathy for Ark passengers

November 11, 2008

A Maryland couple invested in the Anderson's Ark tax scam/pyramid scheme and took six-figure tax losses before the feds shut things down. The IRS disallowed the losses, so the couple took another tack, attempting to deduct a "theft loss" from their participation in the scam.

The Tax Court was distinctly unsympathetic. The judge seems to have found the couple's continued use of Tara LaGrand, and Anderson's Ark-affiliated tax preparer, to be important:

In the first half of 2001 several Anderson Ark defendants had been arrested and indicted. Petitioner husband was apparently aware of these legal difficulties. Whether he chose to believe, as he had been told, that Anderson Ark ultimately would be vindicated, or whether he was indifferent to Anderson Ark’s legal problems because he had already withdrawn all or most of the funds he had invested with Anderson Ark, or whether he made a calculated decision to continue relying on LaGrand’s services in hopes of realizing the bogus tax losses from his Anderson Ark investments, the result is the same: Petitioners have failed to establish that it was reasonably certain at the end of 2001 that they would not recover their alleged Anderson Ark losses.

The issue technically turned on proof - the judge found that the couple failed to substantiate that they had made the investment they claimed as a loss. But throughout the opinion there are indications that the judge felt the couple wasn't coming to court with clean hands.

The Moral? If you try to reduce your taxes via a scam, and the scammers steal from you, don't expect a lot of sympathy from the Tax Court.

Cite: Wyatt, T.C. Memo. 2008-253 (if that link doesn't work, try this one).

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