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john5646c
New Member

Does TurboTax support Form 4684, ordinary loss from investment theft, such as a “pyramid theft”, and where do I access it in deluxe??

 
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DDollar
Expert Alumni

Does TurboTax support Form 4684, ordinary loss from investment theft, such as a “pyramid theft”, and where do I access it in deluxe??

TurboTax does not support  losses from fraudulent investment arrangements, including so-called Ponzi schemes.  See the attached screenshot from the program.

Here is some information on how those types of losses are treated:

You are allowed to claim an Itemized Deduction for Theft Loss in Schedule A. Since you were the victim of a Ponzi Scheme this theft loss is not limited to the $100.00 floor or 10%-of-AGI limits and it can create a Net Operating Loss. You have two options:

  1. The IRS has provided safe harbor rules for computing losses from Ponzi-type schemes. The rules allow a deduction of 95% (75% for taxpayers suing third parties) of the net investment, less any actual recovery and potential insurance recovery (Rev. Proc. 2009- 20). Taxpayers using the safe harbor complete Section C of Form 4684. Appendix A of Rev. Proc. 2009-20 is not required.
  2.  Taxpayers who cannot or choose not to use the safe harbor rules may claim a loss in the year the theft is discovered or amend returns for open years to recalculate income for those years by removing phantom income (Rev. Rul. 2009-9; PMTA 2013-003). Losses within IRAs are limited to the taxpayer’s basis in the IRA and are deductible after the distribution of his entire interest in the IRA. (INFO 2010-0234)

Regardless of how you choose to report the loss, you must do so through Schedule A. Unfortunately TurboTax does not have the forms necessary to deduct a Theft Loss from a Fraudulent Investment Transaction. We recommend that you visit a local Tax Professional to handle your situation.


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