Adkins v. United States, No. 19-1356 (Fed. Cir. 2020)Annotate this Case
Adkins sought a federal income tax refund, based on financial losses sustained as the victim of a fraudulent investment scheme. The IRS was unable to formalize the parties’ settlement before the statute of limitations on the refund request was set to expire. Adkins filed suit. Following a remand, the Claims Court ruled against Adkins.
The Federal Circuit reversed. The court noted its previous holding that the Claims Court misconstrued the regulation concerning the timing of a theft loss deduction by reading Treasury Regulation 1.165- 1(d)(3) as imposing a higher burden on taxpayers who attempt to recover their losses after discovering a fraud than on taxpayers who claim the same loss immediately upon discovery and by holding that, where a taxpayer has filed a claim for reimbursement from those who defrauded her, the taxpayer may not claim a loss until that claim is fully resolved or abandoned. What a taxpayer must prove by reasonable certainty is that, as of the time the loss was claimed, there was no reasonable “prospect of recovery”; she is not required to prove that it was certain no recovery could be had. While one could establish the absence of any reasonable prospect of recovery by the abandonment of a claim, abandonment is not a prerequisite to such a showing. On remand, the Claims Court again required too much with respect to the showing required.