How to report theft/loss on Sch C

[ILLMAS]

Part I

TP had a smash and grab break in damaging thousands of dollars in spices and other merchandise that was trampled or damaged in the robbery, he submitted the following claim to his insurance company:

Computer $300, TV $200, Security Cameras $300, Printer $50 and $21,000 in assorted spices and merchandise, the insurance covered all the electronics and only covered $17,150 of the merchandise, TP received an insurance check for $13,000 after $5,000 deductible, in other words he was paid $18,000. So he is out $3,000 that he had to replace out of his pocket.

Part II

As part of the robbery, $7,000 was taken from the register, insurance claim paid zero, so he is out $7K

Part III

Thiefs took $10,200 in state lottery scratch off tickets, insurance claim paid zero, state made him responsible for repaying money back. After various attempts to try to get a answer as to why he had to pay the money if the state can disable those tickets and make them invalid, he was told not ever call back again, he hired an attorney and was told it was better to pay the state. He currently has a payment with the state.

Part IV

TP got upset and closed his state lottery account and was assessed a $3,500 fine, that fine was added to his payment plan.

Part V

After the business was up an running, someone managed to withdraw $5,450 from his business bank account, bank was not able to trace or recuperate the money because it was an authorized transaction according to the bank.

Out of all these what can be taken as a loss and how is it reported?

Thanks

MAS

[michaelmars]

do you have E&O coverage before you start this one? sounds fishy to me about the bank and the state lottery stuff.

[ILLMAS]

I know it sound fishy, I've been holding on this tax return for over a month because things don't make sense to me, I even called another TP that works at a gas station to ask her about stolen lottery tickets how, and honestly it doesn't make sense to me. TP is aware, he is responsible for his numbers and what he is reporting on his tax return, unfortunately I am relieing on his documents and he can sue himself if he wants.

[BulldogTom]

All of this is business property? Are any of the items on the fixed asset schedules?

Assuming this is all business property.

The fixed assets would be "sold" for the net recovered insurance payments on the 4797. It will flow from there.

The inventory will be "sold" at the net insurance recovery amount as well. This will flow through the inventory lines on the return.

He was not "paid" the deductible. He only received what they paid him.

Lottery tickets, cash and "fine" for terminating contract should be listed as business expenses - something like "stolen merchandise and cash not reimbursed by insurance" on the tax return.

Same thing with the unauthorized withdrawal from the bank.

Document and get ready to show the police reports, pictures of the damages, insurance reports, bank refusal to pay the unauthorized withdrawal, and other supporting documents in a year or two to the auditor.

Charge accordingly.

Tom

Hollister, CA

[Jack from Ohio]

Get a HUGE retainer up front!!! Lots of red flags in that story.

The IRS auditor will thoroughly pound on the question "Did you think all these things were normal and correct?"

[kcjenkins]

I'm with Tom on this one. Only thing I have a question about is, on the inventory items, is his number his cost or his sale value?

[David1980]

Part II

As part of the robbery, $7,000 was taken from the register, insurance claim paid zero, so he is out $7K

So they had $7,000 of cash that never made it to the bank. When they calculated their gross income did they include that $7,000 or just the income that was deposited to the bank?

[ILLMAS]

Probably not but I will ask

[BulldogTom]

I'm with Tom on this one. Only thing I have a question about is, on the inventory items, is his number his cost or his sale value?

It really should not matter. If the inventory is being correctly accounted for (FIFO LCM) then the beginning inventory plus purchases minus ending inventory will give you COGS. The insurance proceeds (whether insurance paid on value or cost) go in on the revenue side. Should come out correct regardless of the amount of insurance received.

I purposely assumed that MAS was going to believe his client, so I did not go into the red flags on this scenario. I just tried to assume that the client's version of the story is the truth and the tax return mechanics was what we were dealing with.

Tom

Hollister, CA

[ILLMAS]

Thanks Tom for your words, just to share with all, I already went through a an uninsured losses with the IRS, I know what to get and what they will be looking for.

MAS