Investors who lost money in Ponzi strategies are allowed a tax deduction, but many questions have to be responded to prior to actually entering the deduction on the tax return. For example, since Ponzi-scheme victims have paid tax on fictitious income, how are they to get refunds of their overpaid taxes? Amended earnings would offer some alleviation, but refunds for most of the last years would be barred by the time of restrictions.

3,000 annual deduction limit. Alternatively, possibly the loss should be characterized as a theft reduction. However, this also restricts the deduction because theft losses are usually deductible only to the extent they exceed 10% of the victim’s adjusted gross income. Even the timing of losing is difficult: if the reduction is deducted in the year the victim spent the money, or in the year the fraud was discovered?

The IRS has released pronouncements that provide answers to these and other related taxes questions. This article explains and illustrates those pronouncements. To ease the burden on Ponzi structure victims, the IRS has attempted to simplify the deduction of Ponzi loss. Within the last several years, many Ponzi schemes have come to light.

The most well-known, of course, was the Bernie Madoff scandal, but victims of other unscrupulous individuals are surfacing on a weekly basis almost. Ponzi schemes will come in many variations, but in general the perpetrator claims to be skilled at picking low-risk investments that produce above average yields. These statements, and person to person, cause investors to provide their money to the perpetrator.

Subsequently, the traders get fictitious financial statements displaying that they indeed are making above average returns. The fraud continues until investor withdrawal demands exceed the perpetrator’s ability to pay. The trader’s contact law enforcement then, and the causing investigation bring the scams to light. Investors who lost profit Ponzi strategies are allowed a tax deduction, but many questions need to be answered prior to actually entering the deduction on the tax come back.

• No you can predict the marketplace consistently
• Private equity firms
• Allgreen (already delisted in 2011)
• 40 to 50 years: PRS Moderate Fund (60% Equity and 40% Bond)

For example, since Ponzi-scheme victims have paid taxes on fictitious income, how are they to get refunds of their overpaid taxes? Amended returns would offer some comfort, but refunds for many of the prior years would be barred by the period of restrictions. 3,000 annual deduction limit. Alternatively, perhaps the reduction should be characterized as a robbery reduction. However, this also restricts the deduction because theft losses are usually deductible and then the level they surpass 10% of the victim’s alleged gross income. Even the timing of the loss is problematic: if the reduction is deducted in the year the victim spent the money, or in the entire year the fraud was discovered?

The IRS has issued pronouncements offering answers to these and other related taxes questions. This article shall clarify and illustrate those pronouncements. The IRS won’t treat Ponzi losses as capital losses because the perpetrator had not been really investing the taxpayer’s money. Instead, the money was used by the perpetrator to pay other investors and to fund the perpetrator’s lifestyle; that being the entire case, the taxpayer was defrauded, resulting in a theft loss rather than a capital loss. 3,000 capital loss deduction limit will not apply.