Will Turbotax 2018 Home Business support Ponzi issues? Theft? Loss

[dh2004]

I was robbed by a very slick precious metals ponzi.  Does Turbotax home business 2018 or any other version of turbotax...for that matter any tax software have a module to guide me through the filing process?

[dh2004 · Accepted solution]

While a theft loss related to personal-use property cannot be claimed in 2018 through 2025 unless the result of a federally declared disaster, a theft loss of investment property continues to be deductible as an itemized deduction. “ Looks like Ponzi losses can still be claimed after all.

[Opus 17]

I doubt it.  Mainly because, theft losses are disallowed starting in 2018 as a result of the tax reform law, unless they are a result of a federally declared disaster (like a hurricane). 

Ponzi schemes are complicated because it is not always easy to determine the timing or amount of the loss.  Because of the tax reform law, you would have to deduct your losses on an amended 2017 or earlier return, and I don't know if that is allowed.  You should consult a professional tax accountant.

[dh2004]

My CPA recently finished up 2018 training.  He said yes, that ponzi losses are still covered but the three year carry back is gone.  The 20 year carry forward now has no time limit

[Anonymous]

if the loss was discovered in 2018, even though the events took place in 2017 or earlier., no deduction

irc sec 165(e) Theft losses

For purposes of subsection (a), any loss arising from theft shall be treated as sustained during the taxable year in which the taxpayer discovers such loss.

[Anonymous]

(1) A loss from criminal fraud or embezzlement (ponzi tpye scheme) in a transaction entered into for profit is a theft loss, not a capital loss, under § 165.

(2) A theft loss in a transaction entered into for profit is deductible under § 165 (c) (2), not § 165 (c) (3), as an itemized deduction that is not subject to the personal loss limits in § 165 (h), or the limits on itemized deductions in §§ 67 and 68.

(3) A theft loss in a transaction entered into for profit is deductible in the year the loss is discovered, provided that the loss is not covered by a claim for reimbursement or recovery with  respect to which there is a reasonable prospect of recovery.

(4) The amount of a theft loss in a transaction entered into for profit is generally the amount invested in the arrangement, less amounts withdrawn, if any, reduced by reimbursements or recoveries, and reduced by claims as to which there is a reasonable prospect of recovery. Where an amount is reported to the investor as income prior to discovery of the arrangement and the investor includes that amount in gross income and reinvests this amount in the arrangement, the amount of the theft loss is increased by the purportedly reinvested amount.

(5) A theft loss in a transaction entered into for profit may create or increase a net operating loss under § 172 that can be carried back up to 3 years and forward up to 20 years. An eligible small business may elect either a 3, 4, or 5-year net operating loss carryback for an applicable 2008 net operating loss.

(6) A theft loss in a transaction entered into for profit does not qualify for the computation of tax provided by § 1341.

(7) A theft loss in a transaction entered into for profit does not 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 it occurred on or b/4 12/31/2017 and discovered in 2017 with no hope of recovery, it would be on 2017 return.  

if in 2018, no deduction. 

[Richd48]

Determining the the time frame in which the loss of a Ponzi scheme occurred can be flexible... ex... were the perpetrators  indicted... were they convicted... and when did you determine the loss was uncollectible... any one of those could be used as dates of occurrence... one has to think outside of the box when it comes to Ponzi schemes.... just like the perpetrator did

[Richd48]

Prior to 2018 TurboTax advised me to report the Ponzi scheme as a theft and loss but do not check the box for Ponzi scheme under forms 4684.... for 2020 they're not advising so I simply just went back into 4684 and reported as a theft and loss of investment in order to carry it forward as they had no provision for that as in past years... I simply deducted the amount I've already written off.... if I get audited my numbers may be in the wrong place but I'm still entitled to them and it should not affect my tax return according to 165

[Richd48]

But where is your CPA advising you place the Ponzi scheme for the write-off... would he tell you to still use form form  4684..?

[Richd48]

What forms is he advising you would use for Ponzi scheme for 2019

[mafferik]

Check out this IRS Revenue Procedure 2009-20 specifically for theft losses due to investment schemes, this is a optional Safe Harbor treatment using Form 4684. Bottom line: you can deduct 75% of the qualified investment if recovery is possible, 95% if not.

https://www.irs.gov/pub/irs-drop/rp-09-20.pdf

A qualified investor that uses the safe harbor treatment described in section 5 of this revenue procedure must – 9

(1) Mark "Revenue Procedure 2009-20" at the top of the Form 4684, Casualties and Thefts, for the federal income tax return for the discovery year. The taxpayer must enter the “deductible theft loss” amount from line 10 in Part II of Appendix A of this revenue procedure on line 34, section B, Part I, of the Form 4684 and should not complete the remainder of section B, Part I, of the Form 4684;

(2) Complete and sign the statement provided in Appendix A of this revenue procedure; and (3) Attach the executed statement provided in Appendix A of this revenue procedure to the qualified investor’s timely filed (including extensions) federal income tax return for the discovery year. Notwithstanding the preceding sentence, if, before April 17, 2009, the taxpayer has filed a return for the discovery year or an amended return for a prior year that is inconsistent with the safe harbor treatment provided by this revenue procedure, the taxpayer must indicate this fact on the executed statement and must attach the statement to the return (or amended return) for the discovery year that is consistent with the safe harbor treatment provided by this revenue procedure and that is filed on or before May 15, 2009. .02

By executing the statement provided in Appendix A of this revenue procedure, the taxpayer agrees—

(1) Not to deduct in the discovery year any amount of the theft loss in excess of the deduction permitted by section 5 of this revenue procedure; 10 (2) Not to file returns or amended returns to exclude or recharacterize income reported with respect to the investment arrangement in taxable years preceding the discovery year; (3) Not to apply the alternative computation in § 1341 with respect to the theft loss deduction allowed by this revenue procedure; and (4) Not to apply the doctrine of equitable recoupment or the mitigation provisions in §§ 1311-1314 with respect to income from the investment arrangement that was reported in taxable years that are otherwise barred by the period of limitations on filing a claim for refund under § 6511.