Mazzei v. Commissioner
61 T.C. 497 (Tax Ct. 1974)

  • Mazzei met an "inventor" who told him that he had invented a box. If you stuffed money into it, it would duplicate the money.
    • The only thing the inventor was missing was a big pile of money to stuff into the box. That's where Mazzei would come in....
  • They came to a deal where Mazzei would meet the inventor with a pile of money, and the two would use the box to make a lot of money.
    • Amazingly, this turned out to be a scam, and the inventor stole $20k of Mazzei's money.
  • On his taxes, Mazzei claimed a deduction for a business loss. The IRS denied the deduction.
    • Mazzei argued he was in the business of 'making hundred dollar bills,' and the loss was deductible under Section 26 U.S.C. 165(c)(2) allows a deduction for "losses incurred in any transaction entered into for profit, though not connected with a trade or business."
    • Alternately, Mazzei argued that he had suffered a theft, which would be deductible under 165(c)(3).
    • The IRS argued that Mazzei was an unsuccessful counterfeiter, and counterfeiting is a crime and is against public policy.
  • The Tax Court found for the IRS and denied the deduction.
    • The Tax Court found that Mazzei could not be "in the business" of counterfeiting money and so the losses were not deductible under 165(c)(2).
    • The Court found that even though 165(c)(3) places no restrictions on the allowance of deductions for theft losses, Mazzei's loss was barred because of public policy.
      • The Court felt that Mazzei was involved in an illegal activity, and the taxpayers should not be subsidizing his activities by giving him a tax break.