Following up an earlier post about underappreciated tax deductions that could come in handy, we note the following question addressed to the bloggers at Freakonomics: “Are pirate ransoms tax deductible?”
Yes. The federal tax code allows a tax deduction for losses from theft. According to the IRS, theft includes taking money or property by kidnapping for ransom. The taking must be illegal under the laws of the state where it occurred and must have been done with criminal intent.
The Freakonomics bloggers remind us that the IRS will require proof of loss, so they recommend filing a police report or getting a receipt (from the pirates, presumably).
What if the pirates beat the rap? “You do not need to show a conviction for theft,” the IRS says.
