Top 10 Questions On Ponzi Scheme Theft Losses And Clawback Payments

Question 1.   Ponzi Scheme victims may be entitled to a theft loss deduction. What is considered a theft loss?

  1. larceny, embezzlement, and robbery
  2. A stock loss in the stock market because of excessive earnings paid to an incompetent corporate officer
  3. A loan to a person who went bankrupt and did not pay back the loan

Question 2.   How much can be claimed if there is a Ponzi Scheme Theft loss?

  1. All losses suffered in a tax free pension plan
  2. Everything lost according to the final account balance, even if a portion of the balance was income that was not reported as taxable income
  3. All losses in the final account balance, even if some losses may be recovered by a lawsuit

Question 3.   Can a taxpayer claim a theft loss for all income from a Ponzi Scheme that was reported for tax purposes but never distributed to the victim.

  1. No
  2. Yes
  3. Only the amount of loss that they can never recover

Question 4.   Is a theft loss deductible as a capital gain loss or ordinary income loss?

  1. Only as a capital loss
  2. Investor is entitled to an ordinary loss rather than just a capital loss
  3. Ordinary loss claimed on ordinary income and a capital loss claimed on capital items

Question 5.   How many years may a theft loss be carried back or carried forward from the year the loss is reported?

  1. No carryback is allowed; only a carry forward
  2. One (1) year carry back and five years carry forward
  3. Three (3) year carry back and 20 year carry forward

Question 6.   When should a theft loss be claimed as a deduction?

  1. The year it is discovered
  2. The year that funds were invested
  3. Fifty percent in the year it is discovered and 50% five years later

Question 7.   Is there an IRS procedure that expedites the deduction of theft losses from a Ponzi scheme if there is an indictment?

  1. Yes, the safe harbor
  2. The taxpayer must start a lawsuit to prove the guilt of the perpetrator
  3. The Taxpayer must wait until a Trustee is appointed to recover stolen

Question 8.   A Ponzi Scheme Clawback is:

  1. A forced return of Ponzi Scheme profits to victims of a Ponzi Scheme
  2. A tax deduction for Ponzi Scheme losses
  3. A right to tax refunds for Ponzi Scheme losses

Question 9.   The Tax “Mitigation” rights for a clawback payment of profits earned in a Ponzi Scheme:

  1. Allows those paying a claw back to tax refunds in the year profits are earned
  2. Allows a deduction in the year of the claw back payment
  3. Allows a choice of (a) and (b) above

Question 10.  A clawback of funds in a Ponzi Scheme of invested principal and not profits can be:

  1. Deducted by the Taxpayer in the year of payment as a theft loss deduction
  2. Deducted by the Taxpayer as a non-theft ordinary deduction
  3. Deducted under the Safe Harbor rules


Question 1: The correct answer is 1

Question 2: The correct answer is 2

Question 3: The correct answer is 2

Question 4: The correct answer is 2

Question 5: The correct answer is 3

Question 6: The correct answer is 1

Question 7: The correct answer is 1

Question 8: The correct answer is 1

Question 9: The correct answer is 3

Question 10: The correct answer is 2

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