The amount rolled over certainly isnt taxable ... can you tell me about the settlement?
The amount received was from losses within an IRA, not the full amount of the losses, but a portion.
That really atypical... was there some sort of fraud going on? (typically the investor is responsible for investment losses, UNLESS there was fraud, theft, ponzi scheme, etc
Can you tell me what generated the losses?
From a legal standpoint, you should not be reponsible for taxes on dollars NOT physically distributed
Could it be that taxes were withheld?
sorry withholding would not be on the 1099
I am actually asking for someone else that is trying to prepare their 2012 taxes. The letter with the check from the attorney doesn't say much only that there is a confidentiality clause with the settlement, and I was told it was from a loss in the IRA.
He said this difference in the two amounts were due to huge attorney fees.
Quite honestly sounds a little strange BUT, it may be that the way to recoup the taxes (not have to pay tax on the difference) is to take a deduction for the attorneys fees ... Excess on amount not rolled over would be income BUT then the deduction would take the income away again
However, if these losses were the result of a ponzi scheme (again, typically regular investment losses are the responsibility of the investor) then it will be deductible under a casualty (theft) loss
DO you know anything about how theses LOSSES accurred?
again, if the investments just went down ... there would typically be NO settlement for that ... there MUST have been some fraud or embezzlement going on
I gathered that fraud might be the case from the letter, but I'm not sure. I will have to talk to my friend again. So, if it was fraud, then the difference would be reported as casualty (theft) loss? He still reports the rollover on the 1040, correct? Then report the difference as income on other income line and deduct attorney fees on Schedule A?
Hang on and Ill get you some IRS documentation
Also, from IRS pub 529:
Losses From Ponzi-type InvestmentSchemesThese losses are deductible as theft losses of in-come-producing property on your tax return for the yearthe loss was discovered. You figure the deductible loss inSection B of Form 4684. If you qualify to use RevenueProcedure 2009-20 and you choose to follow the proce-dures in Revenue Procedure 2009-20, you also mustcomplete Appendix A of that procedure and write “Reve-nue Procedure 2009-20” across the top of Form 4684.See Publication 547, Casualties, Disasters, and Thefts,for more information.
We will look into this information. Thank you for your help. With the IRS closed, it was getting to be a panic situation with this question! Can I print our session to refer back to?
If I have a follow up question later, is that an additional session?
Yes, once you aret you can also just bookmark the page here and all the links will stay active as well - for printing, just do (file-print) from your browser .. you can also copy and past into a word document
Just come back here and it will be a continuation of the same question
You might want to use this link
I WOULD like o know more, so I can give you more specific information
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Sorry ... heres the link: http://www.justanswer.com/tax/81vii-received-settlement-losses-ira.html
I will try to get more information and get back with you. I can just use the link to get back in touch with you correct?
Yes, it will just come in as a continuation of this thread
Let me know ...
I apologize if this is a duplicate, I could not tell if my other message was sent. I talked with my friend and he said that the settlement was due to a lawsuit brought against his brokerage firm that suggested he invest in an LLC that turned out to be a Ponzi scheme. He sued on the grounds of bad advice (no due diligence). The money was transferred from his IRA to the LLC. He rolled over the money received from the settlement since the money was originally from his IRA. The amount lost was $140k, the settlement was $95k and he received $54419.21. So, is this a casualty loss situation or what we talked about before; rollover, other income for difference and Schedule A deduction for attorney fees?