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Hi zhoul888,

On the Ponzi Scheme question:

Here is a website for Help for Victims of Ponzi Investment Schemes .

In Revenue Procedure 2009-20, the IRS stated that you can choose not to use its Ponzi scheme tax relief safe harbor, but then you face the general rules for deducting a theft loss.

Under the general theft rules, you need to establish:

-that the loss was from theft;

-that you claimed the theft-loss deduction in the year you discovered the theft 

-the dollar amount of the theft, through sufficient documentation; and

-that no claim for reimbursement of any portion of the loss exists for which there is a reasonable prospect of recovery in the taxable year you claim the theft-loss deduction.

SAFE HARBOR

The IRS will not challenge a Ponzi scheme victim who uses the IRS tax relief safe harbor as to the following treatments of the loss:

1. The Ponzi scheme loss is deductible as a theft loss.

2. The loss is deductible in the year of discovery, which (under this tax relief safe harbor) is the year a lead figure in the Ponzi scheme is:

• charged by indictment with the commission of fraud, embezzlement, or a similar crime;
• the subject of a state or federal criminal complaint and either (a) admits guilt, or (b) has his, her, or its assets frozen by a court-appointed receiver or trustee; or
• the subject of the fraudulent arrangement but (due to his or her death) faces no charge by indictment, information, or criminal complaint (this condition also requires either that a receiver or trustee was appointed with respect to the arrangement or that assets of the arrangement were frozen).

3. The loss amount is computed using the safe-harbor formula, which allows either 95 percent or 75 percent of the loss in the year the Ponzi scheme victim files the safe harbor. 

The tax relief safe harbor truly simplifies the Ponzi scheme theft-loss deduction for the victim.

Establishing the Safe-Harbor Ponzi Scheme Loss in Your Tax Return

To use the safe harbor, you need to comply with its requirements. These include required statements and declarations you make under penalties of perjury on IRS Form 4684, where you:

• name the Ponzi scheme perpetrator;
• state that you have written documentation that supports the amounts you are claiming for deduction;
• declare Ponzi scheme victim status as a qualified defrauded investor; and
• abide by other terms of the declaration.

Hope this helps.