Another sequel to an old blogpost, in this case “We Wuz Robbed”, 8/7/12, and again the plot is theft by deceit. Replacing as villain the improbably-named but larcenously-inclined Yuri Debevc Derivium, we have the equally larcenous Dariusz Potok. Starring as victims-taxpayers in 2013 T. C. Memo. 66,  filed 3/5/13, let me present James M. Urtis and Gaetana R. Urtis. And our host for this tale of woe is Judge Goeke.

Jim and Gae need more space for their six-child family, and hire Onyks Construction, an Illinois corporation, to demolish a large part of their old house and build a massive extension. The aforesaid Dariusz is the boss of Onyks, and absconds with about $400K of Jim and Gae’s cash, fobbing them off with excuses, a cancelled insurance policy (which Jim and Gae have to sue to get) and finally by dying with his toxicologic status unresolved.

Jim and Gae sue, as aforesaid, but all they get is $10K nuisance value from the insurance carrier. Jim and Gae take a $188K theft loss in the year they discover that Dariusz’s corporations have been dissolved and no probate or administrative proceedings have been begun for the estate of the late Dariusz.

IRS claims (a) no theft and (b) if there was one, it was in the year before Jim and Gae took the loss on their 1040.

State law governs what is theft, and Judge Goeke finds the Illinois statutory offense of home repair fraud defines what Dariusz did as theft. Judge Goeke: “Respondent [IRS] argues that petitioners failed to prove that Mr. Potok’s improper taking of their money was anything more than ‘a failure to comply with the terms of the construction agreement.’ We disagree.

“It is clear that by virtue of his criminal fraud Mr. Potok induced petitioners to enter into a contract which allowed him to obtain significant funds from them. Nearly half of those funds ($188,070) were then improperly used for purposes other than construction on petitioners’ home. We will not attempt to distinguish Mr. Potok’s criminal intent in causing petitioners to enter the contract from his intent in taking the improperly used $188,070 from them; we believe these intertwined actions were part of a scheme by Mr. Potok to wrongfully obtain funds belonging to petitioners. We therefore find that petitioners were the victims of a “theft” as that term is defined for purposes of section 165 and may claim a theft loss deduction under that section.” 2013 T. C. Memo. 66, at p. 14.

Next, IRS relies on a pre-trial letter Jim wrote that seems to say he knew the year before he’d get nothing back from the late Dariusz, his estate or anyone else. Now Jim is a lawyer, and that should tell against him, but Judge Goeke brushes the letter aside.

“We do not assign a great deal of weight to Mr. Urtis’ letter. The letter was written to explain the ways in which petitioners sought to recover from Mr. Potok, Onyks Construction, and Essex Insurance. In doing so, the letter focuses on the ways in which recovery was attempted and is vague or simply incorrect about the dates involved and the order of events.” 2013 T. C. Memo. 66, at pp. 19-20.

Apparently Jim was a plausible witness on the trial. Still, be careful what you write to IRS; everything you say can and will be used against you.

So Jim and Gae win. They wuz robbed.