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Lev, Tax Advisor
Category: Tax
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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: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

Hi and welcome to Just Answer!

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


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 -

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 - - box "C" in the header should be checked.
Then - amounts will be transfered to schedule D -
Part I, line 3 - and you should have the loss in column (h).



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.

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