Accounting
IRS gives new guidance for scam victims to deduct theft loss
The Internal Revenue Service has issued a chief counsel memorandum that offers guidance on who is eligible to take a theft loss deduction for scams. The
This is important because under the Tax Cuts and Jobs Act, personal casualty losses are limited to losses incurred in a disaster zone, according to James Creech, a director at the tax advocacy and controversy practice of Top 10 Firm Baker Tilly.
“These scams are just becoming so prevalent and there are so many variations,” he said. “And the scammers are sophisticated. Foreign organized crime is reaching in and targeting U.S. taxpayers, and the losses can be extremely damaging. But because they’re able to cast a wide net, there are a lot of taxpayers who had smaller losses as well.”
A taxpayer who suffers a smaller loss might not have the sophistication to know they could be entitled to take a theft loss deduction, or the facts and circumstances that may make it hard to fit into the Code Section 165(c)(2) profit motive exception to the TCJA limitations.
Over the past few years, Creech has been working with a number of taxpayers who suffered large, catastrophic losses where it made sense to get professional advice.
“The problem is that, especially when the money is being stolen out of retirement funds, there’s a Form 1099-R that comes out of the brokerage,” he explained. “You’ve got a lifetime of income that gets accelerated into one year, so you look like a million-dollar earner on paper but have no money. In that circumstance, it makes sense to find somebody like myself or another tax professional who could look at the facts and examine whether there was a profit motive in this loss.”
If the taxpayer is a retired schoolteacher or office worker, they might have lost $100,000 out of their 401(k) and may not even know about the loss, Creech noted.
“And they may not have the money to hire someone to prepare a memo on this as to what their intent was,” he added. “This guidance from the IRS changes that. Now there’s an ability for solo and small CPA firms to look at the losses that happen to their clients, especially losses that are on the more modest scale, and take a deduction consistent with the guidance. So it’s very helpful from a tax equity standpoint.”
“A lot of these scams start with an impersonation of a government agent or a bank officer saying your account is in jeopardy,” Creech said. “It’s either been hacked or the criminals see a fake account using your name. ‘We need you to move your assets to someplace safe, and once you’ve moved them we’ll return them to you. We’re really trying to protect your money.'”
The IRS guidance for this is the first Creech has seen address the motive head on: “When people are moving their money to keep it safe, the motive of doing that is to preserve future profits of the income, so there could be a profit motive for trying to keep your assets safe. And asset preservation has a profit motive. That portion of the guidance was enormously helpful, because it gives support for people that are the victims of those theft losses to take the deduction. It’s heartbreaking to see non-wealthy people get scammed like that — they’ve lost their money and they owe a huge tax bill. At least there’s a portion of them that deduct the loss.”
“But it’s just as heartbreaking to see those who lost their money in a scam that was not entered into for profit, such as the fake romance or the fake medical condition,” he noted. “For example, ‘I really love you and want to come to the U.S. so we can be together, but I really need some money to settle up some debts I have here.’ Or ‘I need medical treatment in order to live, but once I get treated I’ll come and we can be together.’ It’s still painful for the victims of the scam, but in these cases they don’t get the deduction because there was no profit motive.”
The sole silver lining for many is the withholding, according to Creech: “If there’s 24% stuck in withholding and if you can claim the loss deduction and get the withholding back, it makes an incredible difference. Sometimes that’s the only cash these people will have to live on for the rest of their life, because they lost everything else.”
How does one avoid becoming a victim? Make sure you have a “trusted contact.” Every brokerage account has a place on its application to name a trusted contact, noted Creech: “They are supposed to reach out to you, and say, ‘Hey James, your dad is about to wire $300,000 to China — is this legitimate?”
This allows the trusted contract to veto the transaction and check out what’s happening.
“I’ve seen so many of these scams where a trusted contact would have nipped it in the bud,” said Creech. “But because the victim didn’t complete the trusted contact section on the application, they’re out of luck. A trusted contact is a circuit breaker that allows the contact to pause the transaction until they can check the legitimacy of it.”
The American Institute of CPAs is asking leaders of the Senate Finance Committee and the House Ways and Means Committee to make changes in the wide-ranging tax and spending legislation that was
In a
“While we support portions of the legislation, we do have significant concerns regarding several provisions in the bill, including one which threatens to severely limit the deductibility of state and local tax (SALT) by certain businesses,” wrote AICPA Tax Executive Committee chair Cheri Freeh in the letter. “This outcome is contrary to the intentions of the One Big Beautiful Bill Act, which is to strengthen small businesses and enhance small business relief.”
The AICPA urged lawmakers to retain entity-level deductibility of state and local taxes for all pass-through entities, strike the contingency fee provision, allow excess business loss carryforwards to offset business and nonbusiness income, and retain the deductibility of state and local taxes for all pass-through entities.
The proposal goes beyond accounting firms. According to the
The AICPA argued that SSTBs would be unfairly economically disadvantaged simply by existing as a certain type of business and the parity gap among SSTBs and non-SSTBs and C corporations would widen.
Under current tax law (and before the passage of the Tax Cuts and Jobs Act of 2017), it noted, C corporations could deduct SALT in determining their federal taxable income. Prior to the TCJA, owners of PTEs (and sole proprietorships that itemized deductions) were also allowed to deduct SALT on income earned by the PTE (or sole proprietorship).
“However, the TCJA placed a limitation on the individual SALT deduction,” Freeh wrote. “In response, 36 states (of the 41 that have a state income tax) enacted or proposed various approaches to mitigate the individual SALT limitation by shifting the SALT liability on PTE income from the owner to the PTE. This approach restored parity among businesses and was approved by the IRS through Notice 2020-75, by allowing PTEs to deduct PTE taxes paid to domestic jurisdictions in computing the entity’s federal non-separately stated income or loss. Under this approved approach, the PTE tax does not count against partners’/owners’ individual federal SALT deduction limit. Rather, the PTE pays the SALT, and the partners/owners fully deduct the amount of their distributive share of the state taxes paid by the PTE for federal income tax purposes.”
The AICPA pointed out that C corporations enjoy a number of advantages, including an unlimited SALT deduction, a 21% corporate tax rate, a lower tax rate on dividends for owners, and the ability for owners to defer income.
“However, many SSTBs are restricted from organizing as a C corporation, leaving them with no option to escape the harsh results of the SSTB distinction and limiting their SALT deduction,” said the letter. “In addition, non-SSTBs are entitled to an unfettered qualified business income (QBI) deduction under Internal Revenue Code section 199A, while SSTBs are subject to harsh limitations on their ability to claim a QBI deduction.”
The AICPA also believes the bill would add significant complexity and uncertainty for all pass-through entities, which would be required to perform complex calculations and analysis to determine if they are eligible for any SALT deduction. “To determine eligibility for state and local income taxes, non-SSTBs would need to perform a gross receipts calculation,” said the letter. “To determine eligibility for all other state and local taxes, pass-through entities would need to determine eligibility under the substitute payments provision (another complex set of calculations). Our laws should not discourage the formation of critical service-based businesses and, therefore, disincentivize professionals from entering such trades and businesses. Therefore, we urge Congress to allow all business entities, including SSTBs, to deduct state and local taxes paid or accrued in carrying on a trade or business.”
Tax professionals have been hearing about the problem from the Institute’s outreach campaign.
“The AICPA was making some noise about that provision and encouraging some grassroots lobbying in the industry around that provision, given its impact on accounting firms,” said Jess LeDonne, director of tax technical at the Bonadio Group. “It did survive on the House side. It is still in there, specifically meaning the nonqualifying businesses, including SSTBs. I will wait and see if some of those efforts from industry leaders in the AICPA maybe move the needle on the Senate side.”
Contingency fees
The AICPA also objects to another provision in the bill involving contingency fees affecting the tax profession. It would allow contingency fee arrangements for all tax preparation activities, including those involving the submission of an original tax return.
“The preparation of an original return on a contingent fee basis could be an incentive to prepare questionable returns, which would result in an open invitation to unscrupulous tax preparers to engage in fraudulent preparation activities that takes advantage of both the U.S. tax system and taxpayers,” said the AICPA. “Unknowing taxpayers would ultimately bear the cost of these fee arrangements, since they will have remitted the fee to the preparer, long before an assessment is made upon the examination of the return.”
The AICPA pointed out that contingent fee arrangements were associated with many of the abuses in the Employee Retention Credit program, in both original and amended return filings.
“Allowing contingent fee arrangements to be used in the preparation of the annual original income tax returns is an open invitation to abuse the tax system and leaves the IRS unable to sufficiently address this problem,” said the letter. “Congress should strike the contingent fee provision from the tax bill. If Congress wants to include the provision on contingency fees, we recommend that Congress provide that where contingent fees are permitted for amended returns and claims for refund, a paid return preparer is required to disclose that the return or claim is prepared under a contingent fee agreement. Disclosure of a contingent fee arrangement deters potential abuse, helps ensure the integrity of the tax preparation process, and ensures compliance with regulatory and ethical standards.”
Business loss carryforwards
The AICPA also called for allowing excess business loss carryforwards to offset business and nonbusiness income. It noted that the One Big Beautiful Bill Act amends Section 461(l)(2) of the Tax Code to provide that any excess business loss carries over as an excess business loss, rather than a net operating loss.
“This amendment would effectively provide for a permanent disallowance of any business losses unless or until the taxpayer has other business income,” said letter. “For example, a taxpayer that sells a business and recognizes a large ordinary loss in that year would be limited in each carryover year indefinitely, during which time the taxpayer is unlikely to have any additional business income. The bill should be amended to remove this provision and to retain the treatment of excess business loss carryforwards under current law, which is that the excess business loss carries over as a net operating loss (at which point it is no longer subject to section 461(l) in the carryforward year).
AICPA supports provisions
The AICPA added that it supported a number of provisions in the bill, despite those concerns. The provisions it supports and has advocated for in the past include
• Allow Section 529 plan funds to be used for post-secondary credential expenses;
• Provide tax relief for individuals and businesses affected by natural disasters, albeit not
permanent;
• Make permanent the QBI deduction, increase the QBI deduction percentage, and expand the QBI deduction limit phase-in range;
• Create new Section 174A for expensing of domestic research and experimental expenditures and suspend required capitalization of such expenditures;
• Retain the current increased individual Alternative Minimum Tax exemption amounts;
• Preserve the cash method of accounting for tax purposes;
• Increase the Form 1099-K reporting threshold for third-party payment platforms;
• Make permanent the paid family leave tax credit;
• Make permanent extensions of international tax rates for foreign-derived intangible income, base erosion and anti-abuse tax, and global intangible low-taxed income;
• Exclude from GILTI certain income derived from services performed in the Virgin
Islands;
• Provide greater certainty and clarity via permanent tax provisions, rather than sunset
tax provisions.
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Accounting
Mid-year moves: Why placed-in-service dates matter more than ever for cost segregation planning
In the world of depreciation planning, one small timing detail continues to fly under the radar — and it’s costing taxpayers serious money.
Most people fixate on what a property costs or how much they can write off. But the placed-in-service date — when the IRS considers a property ready and available for use — plays a crucial role in determining bonus depreciation eligibility for cost segregation studies.
And as bonus depreciation continues to phase out (or possibly bounce back), that timing has never been more important.
Why placed-in-service timing gets overlooked
The IRS defines “placed in service” as the moment a property is ready and available for its intended use.
For rentals, that means:
- It’s available for move-in, and,
- It’s listed or actively being shown.
But in practice, this definition gets misapplied. Some real estate owners assume the closing date is enough. Others delay listing the property until after the new year, missing key depreciation opportunities.
And that gap between intent and readiness? That’s where deductions quietly slip away.
Bonus depreciation: The clock is ticking
Under current law, bonus depreciation is tapering fast:
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027: 0%
The difference between a property placed in service on December 31 versus January 2 can translate into tens of thousands in immediate deductions.
And just to make things more interesting — on May 9, the House Ways and Means Committee released a draft bill that would reinstate 100% bonus depreciation retroactive to Jan. 20, 2025. (The
The result? Accountants now have to think in two timelines:
- What the current rules say;
- What Congress might say a few months from now.
It’s a tricky season to navigate — but also one where proactive advice carries real weight.
Typical scenarios where timing matters
Placed-in-service missteps don’t always show up on a tax return — but they quietly erode what could’ve been better results. Some common examples:
- End-of-year closings where the property isn’t listed or rent-ready until January.
- Short-term rentals delayed by renovation punch lists or permitting hang-ups.
- Commercial buildings waiting on tenant improvements before becoming operational.
Each of these cases may involve a difference of just a few days — but that’s enough to miss a year’s bonus depreciation percentage.
Planning moves for the second half of the year
As Q3 and Q4 approach, here are a few moves worth making:
- Confirm the service-readiness timeline with clients acquiring property in the second half of the year.
- Educate on what “in service” really means — closing isn’t enough.
- Create a checklist for documentation: utilities on, photos of rent-ready condition, listings or lease activity.
- Track bonus depreciation eligibility relative to current and potential legislative shifts.
For properties acquired late in the year, encourage clients to fast-track final steps. The tax impact of being placed in service by December 31 versus January 2 is larger than most realize.
If the window closes, there’s still value
Even if a property misses bonus depreciation, cost segregation still creates long-term savings — especially for high-income earners.
Partial-year depreciation still applies, and in some cases, Form 3115 can allow for catch-up depreciation in future years. The strategy may shift, but the opportunity doesn’t disappear.
Placed-in-service dates don’t usually show up on investor spreadsheets. But they’re one of the most controllable levers in maximizing tax savings. For CPAs and advisors, helping clients navigate that timing correctly can deliver outsized results.
Because at the end of the day, smart tax planning isn’t just about what you buy — it’s about when you put it to work.
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