By: A.J. Cook


After a person loses more than his wife in a divorce, he sometimes expects a relative, his Uncle Sam, to help him out.

Here are three cases about taxpayers who did:

Sally Hartlerode talked her husband, Joe, into lending $70,000 to Bill Swad, her friend. Joe was in a spot of trouble with the IRS and didn't want the taxman to know he had any money, so the promissory note was made payable to Sally.

Twelve months later the Columbus, Ohio, couple divorced. She grabbled the note and $28,000 of Joe's cash and ran off and married Bill.

Claiming he'd been hoodwinked, a fair assumption, Joe deducted a theft loss of $70,000.

In Tax Court Joe said Swad fast-talked him out of the money.

The judge said no matter, this still wasn't a theft, Joe made the loan freely.

Joe ended up with no theft deduction and no wife.

Hugh J. Smith, Jr. and wife, Kate, divorced. The divorce decree stated she would get the Scarsdale, N.Y., home, and their four children would eventually get the French glass collection he started 14 years earlier.

Some years later, Hugh took a theft deduction of $10,150. When the Internal Revenue Service inquired, he said Kate stole then sold a fish, elephant and horsehead from his Steuben glass pieces.

The judge easily saw through this. "There is more than a touch of whimsy in this deduction. A predicate to any theft is that the taxpayer owned the property of which he was nefariously dispossessed." Here, Hugh's children, not Hugh, owned the glass collection.

After nine years of marriage, Marion Frankel left her husband, David, a government worker.

Marion said she was afraid of him. She said he ordered her to leave their Pennsylvania home. When they divorced, David prevented her from taking her possessions out of the house.

A month later when David was gone, she returned with a moving van. She broke a window to get in and, with the help of movers, grabbed all of her things – and some of his.

David considered the loss thievery and recorded it as such on his return.

The IRS moved in and tossed out the deduction.

In Tax Court, Marion explained she took David's things in payment of a loan and for what he owed her under their divorce. After listening to her explanation, the judge concluded there wasn't a theft. Indeed, she didn't take any property unlawfully. So, he ruled no deduction.

The Moral:  Losing a deduction can be a moving experience.

A.J Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

Copyright © 1987-2001 A.J. Cook All Rights Reserved
This information is not intended for use without professional advise.
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Released 6-29-98