District Court Denies Theft Loss Deduction For Worthless Stock

Last week, a federal district judge in the Northern District of Ohio denied a theft loss deduction in connection with worthless stock that was the subject of a pump-and-dump scheme. In this case, the taxpayers, a married couple, had stock holdings in a now-worthless company; several of the company’s former executives were convicted of securities fraud for a pump-and-dump scheme. Consequently, the couple suffered a substantial loss allocable to the stock.