If an investment was made in a company that went bankrupt because of the illegal acts of corporate officers, are the investors entitled to a theft deduction?
Surprisingly, only maybe. Theft of investments usually requires the taxpayer to be the intended target to qualify. The illegal acts of company officers are generally targeted at the company, not the investor directly. This is as if someone were wounded by a ricocheted bullet intended for someone else. Although they were injured, they were not the target of the gunman. If an investment salesman misrepresented the investment and violated state law, the individual may be the target of theft. An investment industry expert can render an opinion whether an investor is a victim of theft, and eligible for the accelerated deduction.
