Drilling Into Money Not Boring by Mark E. Battersby Taxes Equals Surviving Fraud Losses, especially those resulting from fraud, are increasing at an alarming rate. While personal scams are not tax deductible, fraud or scams suffered by a business may be tax deductible. The list of potential scams includes: 7 Business thefts, involving theft from a trade or business. 7 “Pig butchering” or other investment scams where the drilling professional was led to believe money was being invested for a profit. 7 Compromised account or phishing scams where a scammer gained access to, and stole funds from, a business or investment account. A drilling operation or business that is the victim of fraud, embezzlement, or other types of theft, may be able to claim a tax deduction for the loss - if certain conditions are met. First, keep in mind that, for tax purposes, larceny, embezzlement, and robbery are all considered to be “thefts.” For any business to deduct a loss from fraud or theft, it must be able to prove all of the following: 9 The amount of the loss, 9 The data the theft was discovered, 9 That a “theft” as defined by the law in the jurisdiction where it occurred, actually occurred, and, 9 That the loss was not compensated, partially or fully, by insurance or other means. A drilling operation or business victimized by theft, embezzlement, or even internal fraud, should keep in mind that a tax-deductible loss can only be claimed for the year in which the loss is discovered. Obviously, other requirements must be met, including proper records. Records must substantiate the claimed loss, as well as the year in which the loss was discovered. If an insurance payment or other reimbursement for the loss was received, that amount must be subtracted when computing the tax-deductible loss. To calculate the drilling operation’s deductible loss, first determine the adjusted basis of the stolen property and subtract any expected reimbursement. A significant loss might result in a Net Operating Loss (NOL). If the deduction for fraud, scam, or other thefts exceeds the drilling operation’s income for the year (before considering the loss), it might have a NOL for the year. Unfortunately, NOLs can only be carried forward indefinitely and no longer used to offset income in earlier years. Few businesses today are completely safe from an impending loss. Fortunately, the tax rules for loss deductions can help ease the financial impact on many drilling operations. Mark Mark E. Battersby may be contacted via e-mail to michele@ worldwidedrillingresource.com See us at Booth 2313 Groundwater Week 2025 in New Orleans 18 NOVEMBER 2025 WorldWide Drilling Resource®
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