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This article deals with the need for certified public accountants (CPA) to maximize the tax benefits under U.S. Internal Revenue Code (IRC) Section 165. Apparently, investment theft losses that result from nonbusiness, for-profit transactions may qualify for advantageous tax treatment. When a client is the victim of fraud or embezzlement, for example, CPA can reduce the client's ordinary income, recoup any previously paid taxes and minimize future tax obligations by using IRC section 165(c)(2). One should be aware that CPA who prepare and defend an investment loss deduction under IRC section 165(c)(2) must meet numerous technical requirements and make certain determinations based on examining the circumstances. Section 165(c)(2) deductions also frequently prompt U.S. Internal Revenue Service oversight, and in many instances, the standard tax preparation software does not adequately address this deduction, since it is generally geared to the more familiar section 1211 capital loss treatment. But while section 1211 is an appropriate treatment, using it may result in clients' paying more taxes than are required. If a client suffers an investment loss as a result of a fraudulent investment or unethical sales practice, probably the most prudent action a CPA can take, even though there is no requirement to do so, is to suggest the client first discuss it with his or her lawyer.

This article discusses the risks associated with selling financial services in the U.S. The American Institute of Certified Public Accountants (CPA) Code of Professional Conduct clearly states: in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his judgment to others. Accountants who offer separately managed accounts, customized bond portfolio services, will face new challenges. For one, their traditional referral sources may perceive them as a competitor. For another, the personality of a client may match the accountant's practice as it relates to their traditional tax and accounting preparation services, but it may not be compatible as it relates to financial services. Conflicts of interest that did not exist in their previous relationship may require re-examination. Investment advisory relationships also are generally far more complicated than those related to providing traditional accounting services, and investment clients tend to call their investment advisers more frequently than straightforward accounting-services clients do. In a worst case, a potential malpractice suit, lawyers will review all correspondence and reports from the CPA to determine if there was even an implication that specific results would be obtained.