@Alycaria
Answers to Q1 & Part of Q2
What kind of income (Dividends, CG or ordinary income) are the gains from your Ponzi scheme investment is actually not relevant. Here is what happens to the numbers (in my case on 2017 4684 and schedule A, 2025 Schedule A line numbers are different than 2017 but 4684 seems to match closely if not exact)
Assuming it's a net loss (income can't cover the losses) The key is to calculate the net loss (investment principle - gain). Net loss then offsets your AGI through schedule A.
4684 is filled out in the following order
1. Section C Part I if using safe harbor rules. This part will calculate the net loss which subtract your historical gains. Then decide claiming 75% or 95% of the loss on tax return (on line 51)
2. Line 51 then forward to Section B Part I line 28.
3. Line 28 then forward to Section B Part II either < 1 year or > 1 year section before transferring to Schedule A
4. Forward to Schedule line 28 (of 2017 forms) which is "Other Itemized Deductions". Step 3 says where on Sched A to transfer to. 2025 4684 says to transfer to Schedule A line 16 on either line 32 or 38b. Loss is reported on Schedule A as "Other Itemized Deductions" (add the note "FROM FORM 4684, SECTION B" on this line) rather than Casualty and Theft loss line (2025 line 15) on Schedule A.
So follow this calculation sequence you can see it's not counting the income as CG or ordinary income. Its just deducted from the total investments to calculate the net loss which offsets your AGI through Sched A.
In my case, my incomes were phantom income. Income from investment in prior years just went back into the investment and I never received the $ but paid taxes on it (1099 was issued) So phantom income (line 42 of 2025 4684) adds to the original principle to calculate the total loss.
Note Section C Part II also need to be filled out to describe the person/entity that committed the fraud.
Not sure Turbotax simple interview process can do all the properly. Turbotax interview process handle more rare cases poorly and incorrectly in several of my experiences. May have to manually enter it in forms.
My taxes was done by a CPA so just noting what they did for me and how the numbers flowed.
2025 2017 4684
https://www.irs.gov/pub/irs-pdf/f4684.pdf
https://www.irs.gov/pub/irs-prior/f4684--2017.pdf
2025 2017 Sched A
https://www.irs.gov/pub/irs-pdf/f1040sa.pdf
https://www.irs.gov/pub/irs-prior/f1040sa--2017.pdf
Answers to Q2 NOL
On NOL, I don't have experience so probably best to ask someone that knows how to spread out the losses over multiple years. I knew other Ponzi victims that did NOL as its quite common to exceed the AGI. Furthermore, since losses offset AGI, one might consider spreading it out with NOL to only offset the higher tax brackets each year.
