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?
- larceny, embezzlement, and robbery
- A stock loss in the stock market because of excessive earnings paid to an incompetent corporate officer
- 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?
- All losses suffered in a tax free pension plan
- Everything lost according to the final account balance, even if a portion of the balance was income that was not reported as taxable income
- 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.
- 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?
- Only as a capital loss
- Investor is entitled to an ordinary loss rather than just a capital loss
- 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?
- No carryback is allowed; only a carry forward
- One (1) year carry back and five years carry forward
- Three (3) year carry back and 20 year carry forward
Question 6. When should a theft loss be claimed as a deduction?
- The year it is discovered
- The year that funds were invested
- 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?
- Yes, the safe harbor
- The taxpayer must start a lawsuit to prove the guilt of the perpetrator
- The Taxpayer must wait until a Trustee is appointed to recover stolen
Question 8. A Ponzi Scheme Clawback is:
- A forced return of Ponzi Scheme profits to victims of a Ponzi Scheme
- A tax deduction for Ponzi Scheme losses
- 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:
- Allows those paying a claw back to tax refunds in the year profits are earned
- Allows a deduction in the year of the claw back payment
- 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:
- Deducted by the Taxpayer in the year of payment as a theft loss deduction
- Deducted by the Taxpayer as a non-theft ordinary deduction
- 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
Do you need additional help with a Ponzi Scheme or Clawback case? Call or use the online form to contact Richard S. Lehman today.