Ponzi

[sbobsbob]

Line 42 on form 4684 concerning Ponzi scheme losses states enter the interest you received and paid taxes on prior to the discovery year. Line 44 states enter cash you withdrew whether income or principal. Is the withdrawal the same as interest received, and they can just balance out each other as you are supposed to on line 43 add lines 40-41-42 and  subtract line 43 from line 44.

ex; if investment 100,00-  int taxed 50,000 is the 50,000 considered the withdrawal and your net is 95% of 100,000 or is the amount to claim 95 % of 150,000 ?

[MonikaK1]

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

• Calculations TurboTax Doesn't Handle

From <https://turbotax.response.lithium.com/console/agent/17476036?>

The document 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.

You can claim a casualty loss deduction using Form 4684 for Ponzi scheme losses; however, the issues of when the qualifying theft occurred and the relevant dollar amounts can be quite complex. 

The TurboTax in-program guidance at a Learn More link in the Casualty Loss section states:

"We're sorry to hear about this loss. 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 Instructions for Form 4684 explain how to report a theft loss deduction for a Ponzi-type investment scheme. 

See this IRS webpage for more information for taxpayers affected by Ponzi scheme losses.