I've been looking into this for a few weeks now, as I'm helping a friend of mine deal with Ponzi Scam Losses confined entirely to 2023. (I'm a CPA, but Ponzi Schemes are not my specialty.) She invested $450,000 in a scam, lost all of it, little chance she will get any of it back. Her taxable earnings from her day job were about $250,000. She had paid in about $40,000 in withholding during 2023. As I see it--unless she can convince the IRS this is a NOL from her investing business (a sole proprietorship that would only have been created in 2023, since for the 10 years before 2023 she traded legitimate securities and reported gains and losses on Schedule D, etc. ) I did a trial run of this on TurboTax and I found that, unless she can claim an NOL for an investment business, she will basically be able to get her $40,000 paid-in taxes for 2023 back. And that's it! She would get no carryforward of the remaining loss, which amounted to about $175,000. So for a $450,000 scam loss she would lose all but about $40K. Now, if she can defend the idea of sustaining this loss thru her for-profit "investment business." she can do much better and get a substantial return of the loss she sustained by carrying it forward. Am I understanding this correctly? I sure hope not. Am I missing something?
