Court Case Brief Schroerlucke v. United States

Unreimbursed Theft Loss

Schroerlucke vs. U.S., 2011 WL 4440599 (Fed. Cl.)

Facts

Mr. And Mrs. Schroerlucke claim they were due a tax refund for unreimbursed losses for 1997, 1998, 1999, and 2002. Mr. Schroerlucke had worked for World Com until he terminated employment on January 4, 1999 and had accumulated stock options. He had exercised all options and retained full ownership and had all rights in decisions pertaining to the stock. The last of the stock was sold on May 1, 2002, May 24, 2002, and September 12, 2002, in which he received some cash from the sales.

On April 11, 2003, Mr. And Mrs. Schroerlucke filed their 2002-1040 tax return with a long-term capital loss of $6,741,358 and received a maximum of $3,000 deduction. On April 7, 2006, Mr. And Mrs. Schroerlucke filed a 2002 1040X to claim the losses as a theft loss under provisions 26 U.S.C. 165 (2006), claiming an additional $9,959. Based on carry back in 2002, they claimed additional refunds of $63,018, $39,366, and $2,549,207 for 1997, 1998, and 1999 respectively. The total claims equaled $6,530,047.53. IRS denied the refunds on July 31, 2008.

Mr. And Mrs. Schroerlucke filed a complaint on November 10, 2009 alleging they were victims of theft and theft by deception under Georgia law. They claimed a refund of $2,661,550 for unreimbursed theft loss. The claim was denied based on the fact that there cannot be a theft under Georgia law. IRS filed a summary judgment.

Issues

1. Whether the losses are attributable to the state law in the state of residence?

2. Whether the losses were actually due to theft?

Conclusion

1. Yes

2. No

Analysis

There is evidence that the courts have adopted the state law test to determine if a theft has actually occurred, DeFusco v. Comm'r, 38 T.C.M. At 922, Paine vs. Comm'r, 63 T.C. At 740. Therefore, is it permissible to use the Georgia State law to determine if they theft occurred because Georgia is the state of residence for Mr. And Mrs. Schroerlucke.

The Official Code of Georgia Annotated (OCGA) 16-8-4 (West 2011) (theft of conversion) and OCGA 16-8-5 (West 2011) (theft of services) was relevant to this case. The theft of services could not have occurred because Mr. Schroerlucke terminated employment on January 4, 1999 and received all compensation he was entitled to at that point. He had exercised all stock options and retained all the rights to them at that point.