In certain circumstances, investors may be able to deduct losses from theft. To be deductible, the loss must not be reimbursed, such as through insurance. The taxpayer also must prove by a preponderance of the evidence that an actual theft occurred under the relevant local law. In a complex case, a married couple invested in a foreign casino gaming project. They claimed a theft loss deduction on their tax return, asserting that the loss was due to management’s misuse of funds. The U.S. Tax Court found that, under local law, no credible evidence of deception or elements of theft were present. The theft loss was denied and an accuracy-related penalty was assessed. (TC Memo 2025-108)
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