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I have a client that was scammed out of 800,000. This

happened over a four year...
I have a client that was scammed out of 800,000. This happened over a four year period from 2012 to 2016. Can she claim 400,000 on her 2016 taxes and the other 400,000 on her 2017 taxes? The guy who scammed her was arrested by the FBI in 2017.
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Answered in 10 hours by:
3/24/2018
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,092
Experience: 35 years tax experience, including four years at a Big 4 firm.
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Hi from Just Answer. I'm PDtax, and can assist.

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There are special rules for Ponzi-type investment losses. Can you tell me more about your fact pattern?

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Customer reply replied 4 months ago
If the rules are so special perhaps she needs to talk to someone who can sit down with her and give her guidance. I was ready to just add up what she invested (and lost) and simply put it on Caualty and Theft losses on Schedule A. Besides, I really don't know all the details because a lot happened in the four years, how the money was transferred, the FBI was involved and it's not clear where the money is exactly.

The Ponzi investment loss rules are designed to account for the multiple years such losses are suffered.

The IRS provides two items of guidance to help taxpayers who are victims of losses from Ponzi-type investment schemes.

  • Revenue Ruling 2009-9 (https://www.irs.gov/pub/irs-drop/rr-09-09.pdf) provides guidance on determining the amount and timing of losses from these schemes, which is difficult and dependent on the prospect of recovering the lost money (which may not become known for several years).
  • Revenue Procedure 2009-20 (https://www.irs.gov/pub/irs-drop/rp-09-20.pdf) simplifies compliance for taxpayers by providing a safe-harbor means of determining the year in which the loss is deemed to occur and a simplified means of computing the amount of the loss.

The sheer size of the loss will invite IRS scrutiny, for both loss amount and timing of recognition. Since IRS has offered guidance, if your loss qualifies, these IRS pronouncements offer reliable guidance.

I believe that Ponzi losses are allowed to have additional carryback years (to harvest more refund dollars if available). Not researched, but a suggestion, if this qualifies.

Thanks for asking at Just Answer. Positive feedback, five stars please, is appreciated. I'm PDtax.

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https://www.irs.gov/newsroom/help-for-victims-of-ponzi-investment-schemes is the source for the IRS guidance.

PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 5,092
Experience: 35 years tax experience, including four years at a Big 4 firm.
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Customer reply replied 3 months ago
You gave me a lot to get started. I guess I have my homework cut out for me. Thanks for your help.
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