Can I deduct Losses from Internet Scam of Fraudulent Financial Scam ?

[DR-P-K-PODDAR]

I will have to pay Taxes on my Rollover IRA Sale, that I would have otherwise not done

[xmasbaby0 · Accepted solution]

No.   Losses from theft or fraud are not deductible on your federal tax return unless they were the result of a Ponzi scheme.  

[sajan122]

"The IRS released a legal memorandum concluding that some scam victims can still take theft loss deductions despite the Tax Cuts and Jobs Act’s limitation on personal losses.

The January 17 memo (ILM [removed]), released March 14, determined that taxpayers who were cheated in their attempts to invest could take advantage of the theft loss provision for “transactions entered into for profit” and wouldn’t be limited by the TCJA’s restriction on personal casualty losses."

My question is -- does anyone know when Form 4684 will be updated to allow the loss of scam losses

[Mike9241]

we don't know if you are eligible to use the Ponzi loss safe harbor set forth in Rev. Proc. 2009-20, 2009-14 I.R.B. 749, as modified by Rev. Proc. 2011-58, 2011-50 I.R.B. 849. to be able to use these because there is the requirement that conduct of the Scammer meet the requirements that the theft loss result from a specified fraudulent arrangement that is operated by a lead figure who is indicted or the subject of a criminal complaint under state or Federal law. Additionally,

for qualified Ponzi losses section C pf Form 4684 would be completed otherwise section B

you'll find the Turbotax link under Deductions and credits > Other deductions and credits > casualties and theft. (it doesn't handle PONZI type losses well) 

[sajan122]

This is not about a victim of a Ponzi scheme. The IRS in January of this year made a change to the current IRS rule.  They stated that if you were a victim of a scam and your intent had been to make profits, then the loss would be deductible.  The current version of 4684 does not allow this as it is implemented in the Turbotax 2024.  My question is if an update will be available this year or will it be updated for 2025?

[Mike9241]

if you are worried about the wording on the casualty loss 1st screen, just ignore that it does not mention theft of income producing property 

on the next screen you can enter theft, the date and check off income producing property. 

on the business property info screen assume it says income producing property 

finally on the casualty and theft info screen check off I owned this item for investment purposes

you could wait to see if Turbotax ever updates the screens for 2024