How do i write off a ponzi scheme investment. I need specifics, not the IRS publication. Like what forms need to be filled out and submitted? Thank you

[madmanc20]

A good way to locate a CPA is to see who other Ponzi victim members use and perhaps choose from that list.

Generally speaking, you'd want to be in touch with other victims. There is much evolving info regarding safe harbor qualification (criminal action, "ponzi-like" status from some gov branch, year of discovery (when did who know what? I waited until SEC's Ponzi-like document per safe harbor), class actions, and bankruptcy receivership.

Year of discovery is rather important IF you have to line up large income to offset against. I knew a victim who was a CPA and took the most aggressive timeline on the very first phone call he got on the loss. It was was at year end and was useful to offset his large real estate gains in that particular year.

My case was Aequitas. $600M Ponzi case. Was a good private equity for many years but got greedy and took high risks. Started courting small financial advisors to draw in more investments. SEC brought case against the principles and issued letter stating "ponzi-like" satisfying IRS Ponzi safe harbor guidelines clearly.

- Biggest recovery (56% of loss) was class action against auditor (Deloitte)

- Receivership (bankruptcy asset recovery) was 2nd (29% of loss)

- Small recovery ( 5% of loss) from smaller lawyers chasing small financial advisors for the victim group. These recoveries are from advisory firm's business insurance and legal defense fees draws against the max insurance payout so victim lawyers are motivated to settle quickly.

[Borbom4ever]

Thanks for your information and very appreciated.

[Phil2223]

Hi NancyN2,

Can you help me determine how I can best submit Form 4684 for a Crypto theft via Ponzi Scheme to help recoup my taxes. My crypto wallets were compromised by criminals on Binance and have reported to authorities who are pursuing tracing to source although funds cannot be recovered directly. I believe I meet all criteria for Form 4684 for a Ponzi Scheme and need help to submit it properly. What would you recommend for me? Thanks, Phil 

[Borbom4ever]

You need to find a CPA who knows how to file Ponzi scheme related taxes return. Let them do the tax return for you. 

[PJC4]

Your approach seems very reasonable to me based on reading thru IRS guidance.... (I am not a CPA)

I have taken similar approach:

I filed my 2022 return with form 4684 SectionC "Theft Loss Deduction for Ponzi-Type Investment Scheme Using the Procedures in Revenue Proceedure 2009-20"and taking the Safe Harbor....

The Theft loss was not all consumed and there is a carry forward.

How do I compute the carry forward and how do I insert the carry forward into the 2023 return using turbotax??

[madmanc20]

@PJC4

Its been awhile since I did the loss and subsequence recovery reporting and with the tax law changes, not sure if slightly different. But here are the general ideas

In my case, all the loss was consumed in ponzi scheme discovery year tax filing. Thus the remaining action were the subsequent year recoveries. Recovery account is an honor system. Following is my situation

75% Safe Harbor loss. All consumed in Sched A Other Misc Deduction. My situation for this year allowed most of the loss to be useful. Need to study individual tax cases to evaluate this.

Had ~4 loss recoveries over next 3-4 years. Calculation is as follows

    First 25% recovery is tax free (after the 75% safe harbor). No forms to enter this. Just track in own spreadsheet

    > 25% recovery is ordinary income (since loss has been 100% deducted in taxes) and flowed in from newer tax forms sched 1 line 10 with a stmt stating recovery from prior ponzi loss.

So how much to enter as income all depended on own spreadsheet calculations. Other factors such as phantom income need to be added to original loss  (investment paid dividends that just rolled back into investment and lost but had to report as income and paid taxes). Recoveries can be in the form of a check or sometimes issued 1099 (depending on recovery source and path) and all have to be entered properly.

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In your case, if the loss can not be fully consumed. Then probably need to spread it out via NOL carryfwd carryback some how (probably instead of Schedule A loss deduction?). I've no experience with NOL carry fwd/back but knew some follow Ponzi victims that did that (their CPA did) for precisely the reason that it can not be fully/usefully consumed completely under schedule A and therefore benefit would probably be lost through schedule A deduction path.