Home Construction Deal Leads to Theft Loss

In the recent Urtis decision of the Tax Court, the taxpayers’ position that they suffered a theft loss at the hands of their unscrupulous construction contractor was upheld.

The taxpayers had entered into a contract which provided that the construction costs were to be paid in installments, upon completion of certain “milestones.” Soon, the contractor began asking for faster payments, and then later died. Upon concluding that some of their payments had been diverted for purposes unrelated to their home construction, the taxpayers claimed a theft loss deduction.

IRS viewed the situation as one in which the contractor had simply failed to live up to the terms of his contract. The Court, however, concluded that the contractor had made misrepresentations to induce the taxpayers to enter the contract, and he also made false statements regarding progress on the project. His behavior constituted “home repair fraud” under the operative state law.