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I have not been able to verify whether your
"Fraud Recovery Group" is a scam. (I'm a tax preparer
, not a scam investigator.) However, a group by that name has an "F" rating with the Better Business Bureau, and the Department of Justice has sued Tobias Elsass of Columbus, Ohio, and the Fraud Recovery Group, a Worthington, Ohio, company, to prevent them from filing tax returns
, claiming that many of the section 165(c)(2) returns they filed were improper.
In spite of the group being questionable, it may be that you may
claim a section 165(c)(2) loss on your return.
The basic idea of using section 165(c)(2) is that an investment loss induced
by fraud may be considered a "business theft loss" under the Tax Code. (It also applies if the money you requested to pay for bonds was actually diverted for other purposes.) You (the person or entity who owned the bonds at that time) may declare the difference between your basis in the investment, and the expected amount of recovery, as a "casualty of theft loss" as an itemized deduction
on the 1040 Schedule A
in the year of discovery. This loss is not subject to AMT, or the itemized deduction phase-outs; and, if it reduces your income
in the year of discovery to less than 0, it may produce a Net Operating Loss (NOL), which can be carried back 2 (or more) years against income in those years, or carried forward to later years. (If it's the estate, the loss, logically, could be carried forward to the beneficiaries
' returns, as excess deductions
on the estate's final income tax return, but I'm not sure it retains the characteristics of an NOL, so that it might only be allowed against that return, not against returns in later years. If that's your situation, I'd need to research the matter further.)
Additional points, though: As the payout schedule has apparently been set, you know the amount of recovery, although, for tax purposes, some of the recovery has to be assigned to interest
, increasing the loss, but adding additional taxable intrest in future years.
If the discovery was less than 7 years ago, you may amend the return of whoever owned the bonds at the time of discovery; it could be you, the person you inherited
the bonds from, or his/her estate.
Edited by Arthur Rubin on 5/4/2010 at 7:45 PM EST