How do you deduct fraud on taxes?

Answer 1

It would be deductible as a casualty loss. However, you really need to qualify it as fraud...not just believe it is or it's obvious. For example, many people, both employees and investors in Enron stock, tried to take it as a casualty loss (instead of a capital one), for the tax benefit, but that position was rejected each time by the IRS. And Enron is a fairly clear instance of fraud to many....but the case was never proven or prosecuted legally as that.