Guidance Needed on IRS FORM 4684 for Wire Transfer Theft Loss in Partnership LLC

You're dealing with a complicated tax situation that many small business owners unfortunately face. For a partnership LLC, theft losses flow through to the partners' personal returns via the Schedule K-1. For theft losses in a business context, you'll report this on Form 4684 Section B since it's business property. The partnership itself would complete this form, then the loss would flow through to your personal returns. The good news is that business theft losses aren't subject to the same limitations as personal casualty losses. Since the Tax Cuts and Jobs Act, business theft losses remain fully deductible. As for carrying the loss forward, yes, you can likely use net operating loss (NOL) provisions if the loss exceeds your business income. Current rules allow you to carry forward NOLs indefinitely, though they're limited to 80% of taxable income in any given year. Your AGI of $175,000 shouldn't impact the deductibility of the business theft loss since it flows through the partnership structure.

After reading your situation, I wanted to share something that helped me with a similar issue. I had a business loss (not quite as large as yours but still significant) and was struggling with the tax implications until I found https://taxr.ai I uploaded our documentation about the fraud including the police report and bank statements, and their system analyzed everything and explained exactly how to report it on Form 4684. They confirmed that business theft losses can be carried forward as NOLs and showed me the proper way to document everything so it wouldn't raise audit flags. The best part was they showed me how all this would flow through our LLC to our personal returns via Schedule K-1. Saved me hours of research and probably thousands in potentially missed deductions.

I just wanted to follow up about my experience with https://taxr.ai after asking about it here. I was skeptical about how well it would handle our partnership's theft situation, but I'm honestly impressed. I uploaded our wire fraud documentation and partnership details, and it gave me specific guidance tailored to our situation. It confirmed we could use Form 4684 Section B for the business theft loss and explained exactly how the loss would flow through our Schedule K-1s. The most valuable part was the documentation guidance - it pointed out that we needed to strengthen our paper trail regarding the criminal intent aspect of the fraud to solidify the theft classification. Definitely worth checking out if you're dealing with this unfortunate situation.

Have you tried contacting the IRS directly? I had a question about a business loss (different situation but still complicated) and spent WEEKS trying to reach someone knowledgeable. After 14 calls and being disconnected or waiting for hours, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent who specialized in business losses within 20 minutes. The agent walked me through exactly how to document and claim a complex business loss on my return. Saved me so much frustration after weeks of failed attempts to get through the normal IRS phone system.

Well I owe an apology and wanted to follow up. I was super skeptical about Claimyr but decided to try it anyway since I was desperate to talk to someone about my own business loss situation. It actually worked exactly as advertised. I got connected to an IRS agent in about 15 minutes, and after explaining my partnership loss situation, they transferred me to someone who specifically handles business theft claims. The agent confirmed everything about Form 4684 for business theft losses and explained exactly how to document the loss for our partnership return. Saved me days of frustration and uncertainty. Sometimes being proved wrong is actually a good thing!

One thing nobody has mentioned yet - make sure you've exhausted all possibilities of recovery before claiming the theft loss. The IRS requires that you have no reasonable prospect of recovery before claiming the loss. If your bank has an ongoing investigation or if there's an insurance claim pending, you might need to wait until those are resolved before claiming the loss. Otherwise, you could face complications if you recover any portion after claiming the deduction.

Has anyone considered the "claim of right" doctrine as an alternative to Form 4684? If you included the money that was stolen in your income in a prior year, you might be able to take a deduction under Section 1341 instead of as a theft loss.

I'm really sorry to hear about the wire transfer fraud - that's devastating for any small business. Based on what you've described, you should definitely be able to claim this as a business theft loss on Form 4684 Section B since it occurred in your partnership LLC. A few key points for your situation: 1. **Multi-year spreading**: Yes, if the loss exceeds your business income, you can carry it forward as a Net Operating Loss (NOL) indefinitely under current rules, though limited to 80% of taxable income each year. 2. **Partnership flow-through**: The loss will flow through your Schedule K-1s to your personal returns. Since it's a business loss, your $175k AGI won't limit the deduction like it would for personal casualty losses. 3. **Documentation is crucial**: Make sure you have a police report, bank documentation of the fraudulent transfer, correspondence about recovery efforts, and evidence of the criminal intent behind the fraud. One thing to verify - make sure the wire transfer truly meets the IRS definition of "theft" (criminal taking through deception/false pretenses). Wire fraud typically qualifies, but having solid documentation of the criminal nature is essential. Consider consulting with a tax professional who has experience with partnership returns and theft losses, especially given the significant amount involved. The IRS may scrutinize larger theft loss claims more closely.