MTW wrote:
- quote -

I thought he meant that the pawn shop owner had to give back
any goods in his possession that were stolen, which, I
think, would qualify as restitution. The question was
whether he could deduct his cost for those goods.

But thinking about it again, I guess that couldn't have been
right, because those costs would have been deductible
anyway.

Stu

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Stuart Bronstein wrote:

- quote -

In the case in question, I assume that the pawn shop owner,
who was NOT the thief, had to return the stolen goods to
their rightful owners. In turn, the court ordered the thief
in question to pay "restitution" to the pawn shop to the
extent of the money advanced on the goods. If I'm correct
about this fact pattern, then I assume the pawn shop owner
would have to prove that the "restitution" was
uncollectible/worthless before a deduction for losses could
be claimed.

But, based on your initial response to Dick, I gather that
you have interpreted the facts differently ???

MTW

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- quote -

Normally when a court orders restitution, it means the
victim is to be paid back, made whole. It is not a fine but
just repayment of what has been lost.

Stu

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Dick Adams wrote:

- quote -

No audit experience here.

Dick, this reminds me of all those pawn shops down on Gay
Street. You probably know the area. At one time it was
rumored that 90% of their merchandise was stolen, even
though cops checked their inventory sheets regularly.

One thing intrigues, though, and just why was there a cut
off figure of 5000$? Did the RA allow all others less than
5000?

ChEAr$,
Harlan Lunsford, EA in LA

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MTW wrote:
- quote -

Second thought: What do you mean by "court ordered
restitution?" Who is required to "restitute" to whom???

MTW

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Dick Adams wrote:

- quote -

I have no experience with pawn shops (as clients or
otherwise). But the IRS position sounds reasonable to me. I
suppose the shop owner needs to seek legal enforcement of
that restitution, and once THAT fails a deduction should be
allowed.

MTW

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Dick Adams wrote:

- quote -

This is a very quick analysis, but it will give you a place
to start.

See STEPHENS v. COMMISSIONER OF INTERNAL REVENUE, 93 T.C. 108 (1989)
and WALDMAN v. COMMISSIONER OF INTERNAL REVENUE, 88 T.C. 1384 (1987)
in which the court said,

"We have held that section 162 (f) disallows deduction of
civil penalties "imposed for purposes of enforcing the law
and as punishment for the violation thereof," and we have
also held that some civil payments, although labeled
"penalties," remain deductible if 'imposed to encourage
prompt compliance with a requirement of the law or as a
remedial measure to compensate another party.'"

Bottom line - if the shop owner wasn't accused of doing
anything wrong and the restitution is only to make someone
else whole as opposed to punish him for taking stolen goods,
it should be deductible.

Stu

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Acquaitance owns a pawn shop. He has a real problem with
stolen goods. Not goods stolen from his store, but rather
stolen goods he takes as collateral om short term loans.

Most of the theives go directky to jail, do not pass GO,
and do not collect $200. And the merchandise gets
returned to the rightful owner.

Person claims that at his last audit, IRS agent disallowed
all bad debt claims over $5,000 because there was court
ordered restitution.

This strikes me as nonsense. Anyone have any experience
with audits of pawn shops?

Dick

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