Dear Sirs:
Re: Deductibility of Loss from Defalcation
Your letter of November 26, 1990 requested our comments with respect to a loss incurred by one of your clients resulting from an employee defalcation. Since this letter deals with a specific taxpayer and a completed transaction, we regret that we are unable to provide you with specific comments.
The Department's general views on this issue are set out in Interpretation Bulletin IT-185. As indicated in paragraph 4 of this bulletin, the guidelines do not necessarily apply where the amount of the loss is not commensurate with the risks which might be expected in the taxpayer's business, where the circumstances of the loss are extraordinary or doubtful, or where there has been no attempt to obtain restitution."
Since this information can only be obtained by an examination of all of the facts and circumstances in your client's situation, you may wish to discuss the matter with Mr. D.A. Graham, Chief of Audit at the Scarborough District Taxation Office. Mr. Graham may contacted by telephone at (416) 973-3944.
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch