By: A.J. Cook


Cocaine trafficker and personal loan officer Steven D. Ruddel had unique ideas on tax deductions. Most of them arose out of a police raid.

Officers had searched Ruddel's Hollywood, Fla. home and found 334 grams of coke, gold and silver coins, jewelry, $7,362 in cash and weapons. They seized all this and the house.

Ruddel knew he was in serious trouble. So it didn't take much persuasion for him to agree to participate in a sting operation in exchange for a probated sentence. The drug trafficker also agreed to pay $80,000 for expenses of police undercover work. Later he repurchased the coins and jewelry seized from his home for $90,000.

When he filed his income tax return, Ruddel's imagination hit a peak. He deducted the $80,000 as a charitable donation to the police department and the $90,000 as a casualty loss.

The IRS gave the pusher high marks for creative thinking but flunked him on content.

Later, the judge in the case felt compelled to explain why he threw out the deductions:

• A charitable donation is a transfer of money or other asset without receiving any consideration in return, other than the incidental enjoyment coming from the generosity. Ruddel didn't do this because he is a generous guy. He got something for the $80,000–he stayed out of jail.
  
  
• As to the $90,000 paid for the return of coins and the jewelry, the judge followed precedence set in prior cases. These earlier courts refused deductions for assets forfeited because of illegal narcotics activities.
  

Frustrated at every turn, Ruddel then challenged the late filing penalty the IRS had

imposed. He claimed he couldn't prepare his return because the U.S. Marshals threw out his records when they seized his home. The judge allowed the penalty to stand anyway. He said a person should file timely based on the best information at his disposal. The taxpayer can later amend the return, if necessary.

The Moral: You lose some, you lose some.