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Lev
Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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I had cash money being held by MF Global for futures trading.

Resolved Question:

I had cash money being held by MF Global for futures trading. The company went bankrupt last October the bankruptcy court was only able to get 72% of the cash returns. Can I write that off the 28% of the cash funds not returned because the bankruptcy court cannot find the rest of the funds?
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

Hi and welcome to Just Answer!

Yes - you may deduct your loss. There are two options...

1.

If you your own money became noncollectable - that will be treated as a bad debt and is deducted.

In your case that would be a personal bad debt. To deduct a personal bad debt - you need to determine in which year it became worthless.

For details how to deduct bad debt - see this IRS article - http://www.irs.gov/taxtopics/tc453.html

A nonbusiness bad debt is reported as a short-term capital loss in Part 1 on
Form 1040, Schedule D . It is subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.

The bad debt is reported on form 8949 - Part I - http://www.irs.gov/pub/irs-dft/f8949--dft.pdf - box "C" in the header should be checked.
Then - amounts will be transfered to schedule D - http://www.irs.gov/pub/irs-pdf/f1040sd.pdf
Part I, line 3 - and you should have the loss in column (h).

 

2.

If the bankruptcy court cannot find the rest of the funds - you might be subject of fraud.

The fraud may be treated as theft. If you became a victim of theft - you may claim a deduction for Casualties, Disasters, and Thefts losses. A theft is the taking and removing of property or money with the intent to deprive the owner of it.

As long as your losses may be classified as theft - you may deduct them.

The taking must be illegal under the law of the state where it occurred and it must have been done with criminal intent.

For a theft loss, in case of audit - you should be able to show all the following.

-When you discovered that your property was missing.

-That your property was stolen.

-That you were the owner of the property.

-Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.

Such losses are reported on Form 4684. For more information, refer to Publication 547, Casualties, Disasters, and Thefts.

You are not required to file a police report or sue other party in order to claim a theft loss - but in case of audit having a police report or a court judgment might be helpful to proof that the action is illegal under the law of your state.

 

Please let me know if you need any help or clarification.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience: Taxes, Immigration, Labor Relations
Lev and 6 other Tax Specialists are ready to help you

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