IRS: No Deductions for Scandal-Caused Share Losses

March 25, 2004 ( - Investors may have lost buckets full of money from the plunging value of shares in scandal-plagued companies, but they won't be able to deduct the losses from their federal income taxes.

In fact, the U.S. Treasury Department and the Internal Revenue Service (IRS) announced Thursday that the IRS will throw out claims for theft losses from drops in the market value of stock because of corporate misconduct. Officials warned taxpayers not to believe representations to the contrary in the news media.

The reason is simple: such losses aren’t considered thefts of property under state laws, which the announcement said govern whether losses are deductible from federal income taxes, Acting Treasury Assistant Secretary for Tax Policy Greg Jenner said in a statement.

Taxpayers generally are permitted to deduct as a capital loss a decline in value that is recognized by the taxpayer because the stock is sold or exchanged or becomes wholly worthless, the announcement said.