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Abstract: 

In May 2020, the United States Court of Appeals for the Federal Circuit decided an important case, Adkins v. United States, dealing with the timing of a deduction for investment losses, and it did so in a taxpayer-friendly way. In general, a taxpayer may not deduct a loss if a “reasonable prospect of recovery” exists. The Federal Circuit rejected conclusions of the Court of Federal Claims that a loss is not currently deductible if it is “unknowable” whether such a reasonable prospect exists and that, to be eligible for a deduction, a taxpayer must first pursue all possible means of recovery, regardless of the costs involved in doing so and regardless of the likelihood of success. A prospect of recovery isn’t necessarily a reasonable prospect of recovery.

Keywords: Adkins v. U.S., reasonable prospect of recovery, unknowability, deductibility of losses from pump-and-dump schemes

Affiliations:  1: Case Western Reserve University School of Law.