Christopher Pascucci V. Comm., TCM 2024-43
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$8.2 Million Madoff Theft Loss Disallowed for Lack of Ownership of Stolen Assets (Christopher Pascucci V. Comm., TCM 2024-43)
Christopher Pascucci owned 16 variable life insurance policies which provided life insurance and the opportunity for investment. The policies specifically stated that the insurance company was the legal owner of assets in all of the investment accounts. Investments were made in Bernard L. Madoff Investment Securities which claimed to provide investors “a secure investment with a high rate of return using a ‘split strike conversion’ strategy.”
On Dec. 11, 2008, Mr. Madoff was arrested for — and ultimately pleaded guilty to — securities fraud, investment adviser fraud, mail fraud, wire fraud, money laundering, false statements, perjury, false filings with the Securities and Exchange Commission, and theft from an employee benefit plan. Mr. Madoff was sentenced to 150 years in prison.
Mr. Pascucci claimed an $8.2 million theft losses derived from the variable life insurance policies. An individual claiming a theft loss deduction must show (1) that a theft occurred, (2) that there was no reasonable chance of recovery of the property, and (3) that he owned the property at the time it was stolen. Mr. Pascucci was not entitled to a theft loss deduction under §165 for the diminution in value of the assets in the separate accounts, because he did not own the assets at the time of the theft.
Note. Rev. Proc. 2009-20 provided a Madoff safe harbor for theft loss deductions.