CHARLES P. ADKINS, JANE E. ADKINS, Plaintiffs-Appellants
UNITED STATES, Defendant-Appellee
from the United States Court of Federal Claims in No.
1:10-cv-00851-MMS, Judge Margaret M. Sweeney.
Franklin Rodgers, Redmon, Peyton & Bras-well, LLP,
Alexandria, VA, argued for plaintiffs-appellants.
Anthony T. Sheehan, Tax Division, United States Department of
Justice, Washington, DC, argued for defendant-appellee. Also
represented by Richard Farber, Caroline D. Ciraolo.
Lourie, O'Malley, and Taranto, Circuit Judges.
O'Malley, Circuit Judge.
P. Adkins and Jane E. Adkins seek review of the February 23,
2016 decision of the Court of Federal Claims (the
"Claims Court") dismissing with prejudice their
complaint for an income tax refund. Adkins v. United
States, 125 Fed.Cl. 304 (2016). For the following
reasons, we vacate and remand.
case concerns a federal income tax refund sought by the
Adkinses, based on financial losses they sustained as victims
of a fraudulent investment scheme. The main facts are not in
dispute-the central issue on appeal is whether that loss was
properly claimed as a deduction in the 2004 tax year, as
opposed to some other year. For context, we reiterate the
background facts as found by the Claims Court.
in 1997, the Adkinses began investing in securities via
Donald & Company, primarily through its employee Mr. Otto
Kozak. Unbeknownst to the Adkinses, Donald & Co. was
operating a "pump-and-dump" scheme-(1) purchasing
stock in a company; (2) encouraging its customers to do the
same; (3) selling stock in the company at the artificially
increased price for a profit; and (4) leaving its customers
holding stock worth significantly less due to the
aforementioned sales. At their peak in 2000, the
Adkinses' investments with Donald & Co. were valued
at $3.6 million. By the end of 2001, as a result of the
scheme, the value of their investments had declined to $9,
849. In February 2002, the Adkinses, discovering that they
had been the victims of fraud, submitted a statement of claim
to the National Association of Securities Dealers
("NASD") in support of arbitration against Donald
& Co. and three of its principals: David Stetson, Slava
Volman, and Steven Ingrassia.
March 2003, the Adkinses requested that their arbitration
hearing (then scheduled for April) be postponed in light of
recent information from the Department of Justice indicating
that indictments would be handed down against several Donald
& Co. principals and employees in the near future. In
particular, the Adkinses' lawyers "suggested that
the arbitration claim be left open in the event that
proceedings in the criminal matter revealed pertinent
information." Adkins, 125 Fed.Cl. at 309. In
May 2004, an indictment was returned in the United States
District Court for the Eastern District of New York against
Volman, Ingrassia, Kozak, and others, charging conspiracy to
commit securities fraud, securities fraud, and conspiracy to
commit money laundering. In September and October of 2004,
Volman, Ingrassia, and Stetson pleaded guilty, receiving
sentences including imprisonment, supervised release, fines,
mandatory restitution, and forfeiture. Proceedings against
other Donald & Co. principals continued from 2005 to
the criminal proceedings were pending, in 2006, the Adkinses
attempted to recoup some of their losses by claiming a
federal income tax deduction for theft loss under 26 U.S.C.
§ 165. Specifically, the Adkinses claimed a loss of $2,
118, 725 for tax year 2004, with excess refund portions
carried back over the three previous years, 2001- 2003. On
December 12, 2008, the IRS disallowed the Adkinses'
refund claims for all tax years but 2002. The Adkinses
protested at the IRS Office of Appeals, but thereafter filed
suit in the Claims Court before their appeal was complete,
removing the IRS's jurisdictional authority to settle the
claim. After disposing of certain preliminary disputes via
summary judgment, the Claims Court conducted a trial and
concluded that the Adkinses were "not entitled to a
theft loss deduction for the 2004 tax year."
Adkins, 125 Fed.Cl. at 305. In particular, the
Claims Court found that the Adkinses had failed to satisfy
the requirements of 26 C.F.R. § 1.165-1(d)(3) (i.e.,
Treas. Reg. § 1.165-1(d)(3)), insofar as they had not
shown that, in 2004, they could have "ascertained with
reasonable certainty that they would not receive
reimbursement of their losses." Id. at 317. The
Adkinses timely appealed to this court.
Claims Court's legal determinations, including
interpretations of statutes and regulations, are subject to
de novo review and its factual determinations are reviewed
for clear error." Tinton Falls Lodging Realty, LLC
v. United States, 800 F.3d 1353, 1357-58 (Fed. Cir.
2015). On appeal, the Adkinses make essentially four
arguments: (1) the Claims Court failed to correctly apply
Treas. Reg. § 1.165-1(d)(3)'s test for determining
the year in which a taxpayer can deduct a theft loss under 26
U.S.C. § 165; (2) even under the Claims Court's
interpretation of Treas. Reg. § 1.165-1(d)(3), it
improperly required abandonment of their arbitration claim;
(3) the Claims Court failed to apply Revenue Procedure
2009-20 in this case; and (4) if 2004 was ...