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posted Jan 7, 2025 4:03:18 PM

How to Record Ponzi Scheme Loss as a Non-Resident Alien for Future Use?

Hi, I’m a non-resident alien investor who recently discovered a loss from Ponzi scheme. I don’t plan to use the loss for a tax deduction this year but want to ensure I can use it in the future.

 

I’ve read that I may need to file Form 1040-NR and attach Form 4684 (theft loss) with "Safe Harbor under Rev. Proc. 2009-20" written at the top. I’ve also seen recommendations to include a statement of intent to defer usage while still recording the event.

 

Is this the correct approach to record the loss and preserve future tax credits? Or can I wait and file everything only when I decide to claim the deduction?

 

Thanks for your advice!

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1 Replies
Expert Alumni
Jan 13, 2025 10:43:17 AM

It depends. Generally the Ponzi Scheme needs to be reported in the year of discovery, unless specific exceptions apply.  These include losses that are probably due to fraudulent activities and have specific legal implications such as ongoing litigation regarding your specific Ponzi Scheme.

 

According to this link, there may be several other extenuating circumstances that you may defer reporting this Ponzi Scheme.

 

  1. Is a loss from criminal fraud or embezzlement in a transaction entered into for profit a theft loss or a capital loss under § 165 of the Internal Revenue Code?
  2. Is such a loss subject to either the personal loss limits in § 165(h) or the limits on itemized deductions in §§ 67 and 68?
  3. How is the amount of such a loss determined?
  4. Can such a loss create or increase a net operating loss under § 172? (6) Does such a loss qualify for the computation of tax provided by § 1341 for the restoration of an amount held under a claim of right?
  5. Does such a loss qualify for the application of §§ 1311-1314 to adjust tax liability in years that are otherwise barred by the period of limitations on filing a claim for refund under § 6511?

 

If there are extenuating circumstances that warrant a deferral, you may defer reporting the 4684, until details are finalized, by writing "Safe Harbor under Rev. Proc. 2009-20" written at the top of the 4684" and then submit your 1040 NR for the year. Please follow the example illustrated in Appendix A that is listed in this link.

 

Lastly, Turbo Tax does not handle 1040 NR type returns but out affiliate at Sprintax does. Please contact them for further information.