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No risk, no deduction

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Taxpayers may deduct losses up to the amount of their at-risk investment, under certain conditions. But deducting a loss if no risk was involved could lead to a civil fraud penalty of 75% of the resulting underpayment. A U.S. District Court denied one taxpayer’s loss, stating he hadn’t engaged in an at-risk financial activity, and that his capital contributions were made to an account in a Cayman Island entity that he could freely draw from. Based on a finding of fraudulent intent, the court imposed the penalty. (DC UT, 3/8/17, 2017-519)

No deduction for donated aircraft without contemporaneous written acknowledgment

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The U.S. Tax Court held that a taxpayer wasn’t entitled to a charitable deduction for his alleged gift of his interest in an aircraft. He didn’t claim the deduction on his original tax return but rather on an amended return filed nearly six years after the donation. And the documentation attached to his amended return 1) wasn’t a “contemporaneous written acknowledgment” as required by the tax code and 2) didn’t satisfy the statute’s strict substantiation requirements. (148 TC No. 5)