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QUESTION ON MASSIVE PONZI SCHEME LOSS--How to recoup the most??

If an individual is scammed thru a Ponzi scheme type operation, one option is to use 4684 and take the loss as theft and apply the loss to up to 95% of 2023 income, if that's the year of loss.  After reading every detail of Ponzi scheme guidance, I can NOT see where you can claim that loss for 2023 as theft and then carryover the remainder of the loss to future years as an NOL.  I noticed one contributor here noted that for 2023 the NOL would have to be the result of a natural disaster in order to do that.  I read that also in IRS guidance.  I can see that you might report part of the loss as investment loss and use the $3,000/year deduction for the next 20, which means you're going to call part of your loss a theft loss, and part of it an investment loss.  So I may well be misunderstanding the guidance.  She has always filed a typical married joint return, and has never filed a return with a Schedule C in the past.

 

How can an individual trader (who lost $450,000) in a Ponzi type scam in 2023 and made $250,000 joint marital income from day jobs  in 2023 and has traded (not daily but most days) stocks for 5 years best recoup her loss?  She's been reporting trades on Form 8949 (not Schedule C).  She thought she'd found a new career in cryptocurrency trading, but lost $450,000 in a scam, $250,000 from savings in $200,000 from loans she is now repaying.  As I read the guidance, looks like she could recoup the $40,000 in taxes she paid in for 2023, and maybe recoup $3,000 capital loss for 20 years if she reported $60,000 of the ponzi loss as stock trades on 8949.  Can you guys who know this area help her and me out?  I've consulted my friend, a much better CPA, but neither of us has every dealt with Ponzi losses.  What's the best option for this woman when she files her extended 2023 return soon, and have a chance it will hold up under IRS scrutiny?  She's a friend and I don't want to see her lose the opportunity to at least recoup 2023 taxes but also don't want to miss an opportunity for a carryforward.  Help would be much appreciated!

 

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3 Replies
rjs
Level 15
Level 15

QUESTION ON MASSIVE PONZI SCHEME LOSS--How to recoup the most??

Duplicate question. Please post your question only once. If you want to add more information or post a follow-up question, add a reply to your original question. Do not post separate questions about the same issue.

 

QUESTION ON MASSIVE PONZI SCHEME LOSS--How to recoup the most??

I should also add that (1) the investment and the loss are all confined to 2023; and (2) she has no chance of getting any of this investment back from the perps or any third party.  It's just gone.

QUESTION ON MASSIVE PONZI SCHEME LOSS--How to recoup the most??

Sorry.  I kept getting error messages and could not see that it posted the first time I tried.  Maybe the problem was on my end here, just had a total power loss (again).

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