Mazzei met an
"inventor" who told him that he had invented a box. If you
stuffed money into it, it would duplicate the money.
The only thing the inventor
was missing was a big pile of money to stuff into the box. That's where
Mazzei would come in....
They came to a deal where
Mazzei would meet the inventor with a pile of money, and the two would use
the box to make a lot of money.
Amazingly, this turned out
to be a scam, and the inventor stole $20k of Mazzei's money.
On his taxes, Mazzei claimed a
deduction for a business loss. The
IRS denied the deduction.
Mazzei argued he was in the
business of 'making hundred dollar bills,' and the loss was deductible
under Section 26 U.S.C. §165(c)(2)
allows a deduction for "losses incurred in any transaction entered
into for profit, though not connected with a trade or business."
Alternately, Mazzei argued
that he had suffered a theft,
which would be deductible under §165(c)(3).
The IRS argued that Mazzei
was an unsuccessful counterfeiter, and counterfeiting is a crime and is
against public policy.
The Tax Court found for the
IRS and denied the deduction.
The Tax Court found that
Mazzei could not be "in the business" of counterfeiting money
and so the losses were not deductible under §165(c)(2).
The Court found that even though
§165(c)(3) places no restrictions
on the allowance of deductions for theft losses, Mazzei's loss was barred
because of public policy.
The Court felt that Mazzei
was involved in an illegal activity, and the taxpayers should not be
subsidizing his activities by giving him a tax break.
