Can we deduct an ira distribution if it was because of fraud? the taxes will ruin us.

[jhknight56072]

wife was scammed by an african conman. took 30 k out of her IRA, I caught it put it back, she took out another 35k. now the 1099 shows we owe taxes on 65k which Turbo says will cost 19k which will ruin us completely.  Near as I can tell to put the 30k back will half the tax bill , half the pain is still pain, but we're being penalized for contributing too much! Why is there no leniency for a distribution that was taken under false pretenses? Or maybe i just havent found the rigt loophole? thanks

[fanfare]

If you put the first distribution back right away it is a rollover, not a contribution.

if you didn't do that for second distribution, you can make IRA contribution(s) up to the limit you each are eligible for.

[fanfare]

after that you can go to the IRS for an offer of compromise.

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability or doing so creates a financial hardship.

you'll have to make full disclosure of all assets ,income and expenses.

[MonikaK1]

Please enter the information from the Form 1099-R that you received exactly as it appears on the form unless you believe the financial institution made an error.

If the funds were acquired from you by theft, you could report the theft as a casualty loss - except that, for tax years 2018 through 2025, if you are an individual, casualty or theft losses of personal-use property are deductible only if the loss is attributable to a federally declared disaster. Theft losses are generally only deductible in the year you discover the property was stolen.

As fanfare states above, you can make deductible contributions up to your applicable limit if you are eligible.

You may wish to seek legal advice to determine if there are other options available to you regarding the theft.

See here for more information on this topic from the IRS.

@jhknight56072 

[Opus 17]

If you deposited the money back in the IRA within 60 days, that is a rollover, not a contribution.  If you waited longer than 60 days, it is a withdrawal.  

For the 1099-R with 65K withdrawal, you will be asked "did you rollover all the money or do something else".  Check the box for "something else" and then check the box for a "partial rollover."  Indicate that the first $30K was a rollover.  The other $35K is taxable.  Don't list the $30K rollover as a contribution, but do list any additional contributions you might have made.