Does TurboTax handle Tax Form 4684 Sections B and C referring to loss-deduction for Ponzi-type losses?

[janelurie1-mac-c]

I need to enter in a casual or theft loss carry forward.

[JohnB5677]

TurboTax does not support Ponzi-scheme situations.

Unfortunately, this type of loss can be particularly complicated for tax purposes, and in many situations the tax treatment depends on factual determinations best handled by an attorney. TurboTax does not support tax losses from investment fraud. We recommend consulting a tax professional if you've experienced this situation.

The IRS provides two items of guidance to help taxpayers who are victims of losses from Ponzi-type investment schemes.

• Revenue Ruling 2009-9PDF provides guidance on determining the amount and timing of losses from these schemes, which is difficult and dependent on the prospect of recovering the lost money (which may not become known for several years).
   
• Revenue Procedure 2009-20PDF simplifies compliance for taxpayers by providing a safe-harbor means of determining the year in  which the loss is deemed to occur and a simplified means of computing the amount of the loss.

For an overview of this guidance, see IRS Commissioner Doug Shulman's March 17, 2009, testimony before the Senate Finance Committee on tax issues related to Ponzi schemes.

Questions and Answers

• FAQs Related to Ponzi Scenarios for Claw back Treatment

Help for Victims of Ponzi Investment Schemes

If this does not completely answer your question, please contact us again and provide some additional details.
 

[Hanna20]

@janelurie1-mac-c 

I have the same question. I've done it in Section C last year. The IRS rule isn't clear that if tax payer invested as an INDIVIDUAL investor ( not on behalf or from a business ) into a scam company, and lost all the money. By the Ponzi Scheme Loss, the first year when the loss discovered, 95% total investment loss can be claimed vs victim's income tax. But not sure for the next years, can the CARRYOVER loss  can be continue deducting 95% against the tax income in Net Operating Loss (NOL) or it must go back to Individual allow to deduct only $3000 per year as Capital Loss in Schedule D? If you've found out the answer, please share it. Thank you!

[Octavian052006]

So for investment fraud in 2024, where do we deduct that in TurboTax Premier?

[RobertB4444]

If your investment became worthless in 2024 then you would enter it on your 2024 tax return, not 2023.

You will enter it on schedule D as though it were a sale of an investment and you had received a 1099-B for it.  You'll enter the purchase date as the date that you made the investment, the purchase price as the amount that you invested, the sale date as the date that you became certain that the investment was worthless and the sale price as whatever amount you received (which can be zero).  

You must be certain that the investment is worthless before you enter the exchange.  You should be able to demonstrate it through letters from an attorney or police reports or something - in case you are required to prove it.  If there is a chance of partial recovery at a later point then you must wait until that passes before you enter the exchange.

This is a capital loss which can only be deducted against other capital gains or at the rate of $3000 a year against regular income.

@Hanna20 

@Octavian052006 

[03212025fh]

Hi, I am trying to fill out our Ponzi-type loss on Section C of Form 4684.  As you mentioned previously, this is a complex topic, Turbotax doesn't support this.  However, I am going to fill out this form by myself for my 2024 tax returns.  Can you tell me how i can enter amount on page 3.  The software referred to the worksheet, which doesn't include Section C.

[BrittanyS]

Since Ponzi-type losses are out of scope for TurboTax, we can't advise how to enter on page 3.  See the link below for more information:

• Calculations TurboTax Doesn't Handle

@03212025fh 

[03212025fh]

I have the following questions:

1. I checked the link you had provided.  Under the 2024 software, i didn't see anything about how Turbotax doesn't not support 4684 Section C (page 3 - Ponzi type losses).  When I did a search of the article, form 4684 did match in 3 instances but all of them were about other forms.  Did I miss anything?

2.  Since the desktop/on-line version doesn't support Form 4684 Section C , can I use Turbotax preparation service to file my 2024 tax returns?  This assumes your version will support it.  If so, do I call your customer service?

[MonikaK1]

The document linked to the help article you were provided earlier, Unsupported Calculations, states on page 16:

7. Investment Fraud: The program does not support tax losses from investment fraud.

Ponzi schemes are a type of investment fraud.

The TurboTax program doesn't support these calculations. This would include the versions that the Full Service experts are using.

If, on the other hand, you can substantiate that you have a worthless investment, you can enter that as a capital loss. See this TurboTax blog article for more information.

@03212025fh