JK Harris, a Charleston SC based company, has been in
trouble with several State Attorney General's and IRS. You
can read the latest article on them at Charleston based
newspaper

http://archives.postandcourier.com/a...62190857.shtml

It looks like it is "lot more than many". YMMV.

-- Greg

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Deduction for Enron losses? IRS says no way

HARRIET JOHNSON BRACKEY

The Miami Herald April 2004

Investors who feel they've been robbed by Enron and WorldCom
and other corporations caught in fraud and accounting
scandals won't get any sympathy - or tax deductions - from
the Internal Revenue Service.

Your money was not stolen if you lost it in an investment
bought on a public stock exchange, the Treasury Department
warns. Some promoters have been trying to make that claim,
to get bigger and faster tax deductions for investors. But
the IRS said it will disallow any such deductions it finds
on returns.

In the rush toward April 15, the Treasury in two releases
this week put out warnings against what it said were media
reports and anecdotes concerning "frivolous" deductions.

"We want to make sure people aren't misled by theories,"
Acting Assistant Treasury Secretary for Tax Policy Greg
Jenner told The Miami Herald on Friday.

Another idea making the rounds that Jenner said won't fly:
Taxpayers who exercise stock options can avoid income tax or
the alternative minimum tax. "Taxpayers should be very
cautious about claiming refunds on this basis," he said.

As for Enron and WorldCom, "It wasn't the companies that
robbed you of the money, it was the market," said Martin
Nissenbaum, national director of personal income tax
planning at Ernst & Young.

What's not clear is what will happen to investors who have
been scammed, by pyramid or Ponzi schemes or South Florida's
notorious boiler-room operations. Those sorts of issues,
attorneys say, have to be well-documented and may land in
tax court for a final decision.

A tax consulting firm, J.K. Harris, is promoting the idea
that these losses can be treated as theft under Section 165
of the tax code.

The firm's Web site: http://www.165services.com.

The firm takes a fee, based on the loss, for its services,
which include gathering background material for the taxpayer
and agreeing to represent the taxpayer in case of an IRS
audit.

Richard Kess, head of client services for J.K. Harris in
Tampa, Fla., says his company has helped 500 injured
taxpayers seek $25 million to $30 million in such deductions
in the last 2 years.

Beverly Joyce Barea is one. She said Friday that she's
waiting for a $16,000 tax refund. She lost more than
$200,000 in an investment scam about four years ago, had to
go back to teaching to make ends meet and during it all,
survived a bout with cancer in her thyroid.

"I never thought I'd get anything after what happened," said
the 69-year-old widow who lives in the central Florida town
of Avon Park.

She still may not.

For scammed investors, Jenner said only there's only a
possibility of a legitimate deduction. "You can never say
never, but it seems very, very unlikely," he said.

Martin Press, an attorney at Gunster, Yoakley & Stewart in
Fort Lauderdale, Fla., says he's handled cases in which the
investment adviser said he was going to buy securities or
put money into tax shelters, but never did.

Press calls that embezzlement and the IRS has agreed, he
said. "Let me tell you what these taxpayers have to prove:
that the investment never took place," he said.

What's the reason people want to call investment losses a
theft?

It's a better deal in terms of tax breaks.

Taxpayers can deduct all of a theft loss on investment
property in one year against ordinary income tax, which can
run up at rates up to 35 percent.

If instead the taxpayer deducted investment losses, there
are annual limits. First, the amount of capital losses is
used to offset any capital gains, such as profits on the
sale of other stocks. Second, the tax deduction is worth
less, because the tax rate on capital gains is a maximum of
15 percent.

And, if the taxpayer has more losses than gains, the extra
losses can only be used at a rate of $3,000 a year to offset
ordinary income taxes. If it takes years to use up the extra
amount, that's the way it goes, according to IRS rules.

State law has to define something as a theft in order for
taxpayers to deduct it from their federal income taxes.
Nissenbaum notes that the legal idea of theft includes a
direct connection between the robber and the one whose
property is lost.

"Whoever pleaded guilty at Enron would have to pocket your
money directly," he said. "Unless state law starts to treat
that as theft from you, you have to say the market ran away
with it."

Moderator:
I looked into a Ponzi scheme for someone and found they
had to take it as a theft loss because they were loaning
money to the scammers and did not have an equity position
in the company. They got shafted because they could not
itemize??

So Enron et al were equity losses and are long-term
capital losses.

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<samvit[at]aol.com> wrote:

- quote -

I wasn't going to bother answering, but this is something
that just bothers me. Anyone can write fancy advertising
copy. Lets see what Sec 165 says:

SECTION 165. LOSSES

(a) There shall be allowed as a deduction any loss sustained
during the taxable year and not compensated for by insurance
or otherwise.

(c) LIMITATION ON LOSSES OF INDIVIDUALS

In the case of an individual, the deduction under subsection
(a) shall be limited to--

(2) losses incurred in any transaction entered into for profit,
though not connected with a trade or business

OK, so all that means is that if you have a loss, you are
allowed to deduct it. Now it doesn't sound so
high-falootin, does it? I am not impressed by companies who
try to use big words to try to impress you, when normal
words will do.

- quote -

Of course. I believe any competent CPA, Enrolled Agent, or
likely a lot of unenrolled preparers would be able to assist
you and answer any questions you might have on this. All
their ad copy is implying is that you can take a deduction
on your tax return, and that if that leaves you with a
negative income, you can apply the loss to other years.
It's not rocket science, or brain surgery. Find a good
local tax professional.

And yes, based on the reports of some taxpayers I have
spoken to, I have heard the stories about various JK Harris
affiliates charging a lot and not following through. But
I'm also sure that someone out there was not satisfied with
me at one time or another. But I hope it's not that many.
Any tax pro should be able to give you an overview of what a
case will need to have done, the costs involved, and if they
are qualified to do the job. Ask around.

Good luck!
Bryan

------------------------ Bryan Kellar, EA
Oregon Tax Help, Inc. -- Portland, Oregon
www.oregontaxhelp.com
www.canadatax.org

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I was the victim of an investment fraud that was prosecuted
by the Justice Department and resulted in the sentencing of
the CEO and several other principals in the company. I
received a letter from J.K. Harris informing me that I would
be eligible for a tax refund under Section 165 (C)(2). Here
is some verbage from the letter: "If your investment theft
loss exceeds your ordinary income in which the accelerated
deduction is taken, the remaining difference may be applied
to ordinary income earned the previous three years to allow
for an immediate tax refund".

I would obviously be interested in pursuing this, but I'm a
bit wary about J.K. Harris. I did some searching in
newsgroups such as this, and found many complaints about
J.K. Harris. Lots of reports of overpromising,
overcharging, and just general unprofessionalism. Are there
other firms and organizations out there, or individuals for
that matter, that you would recommend to help me with this
issue? Many thanks for any information you can provide.

--sam

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