you'll need advice from a tax professional that can review the contract and the entire situation.
there are several possibilities
you were scammed
if so, this loss may not be deductible at all
it was a legitimate business that failed
until it actually goes bankrupt, you are probably not entitled to any sort of deduction
if and when it does this would be an investment loss (capital loss) reported on form 8949 with a net capital loss you can only deduct $3,000 per year
it could be a business loss deductible as an ordinary loss but again not until it goes out of business
since you are still trying to recover, nothing would be currently deductible since the amount of your loss can't be determined. what the IRS would say is your loss id a contingency
again this is something that needs the opinion of a pro - possibly even a tax lawyer. this is a public forum and what i have stated is an opinion which would be worthless if the IRS contests what you do.
