Ponzi

[Possi]

I have a new client (last year) who lost money in the Ponzi scheme. He is still getting some of his money back as it trickles in.

I hope that next year, when he knows exactly how much he lost, I can take the bad debt write-off on the Sch D and keep it simple..

Am I right?

[dyne]

If it is a non-business matter a deduction for a bad debt is ONLY deductible
when it is TOTALLY worthless. As long as money is trickling in, no deduction is
allowable. Page 8-06 of TTB. When the Tucker Car Corporation went bankrupt it was
17 years before a loss could be claimed by the stock holders.

[Gretel]

Possi,

Look at Rev.Proc. 2009-20

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

Madoff-Ponzi losses are qualified theft losses.

[Possi]

Thanks!

Thanks, I will look at the ruling. Still, as long as money is trickling in, I don't think I can move on this. I believe this year, 2010 is the last he will see of anything coming back to him.

[Maribeth]

[QUOTE=Possi;101741]I have a new client (last year) who lost money in the Ponzi scheme. He is still getting some of his money back as it trickles in.

I hope that next year, when he knows exactly how much he lost, I can take the bad debt write-off on the Sch D and keep it simple..

Am I right?[/QUOTE

If it truly is a Ponzi scheme, then it is not considered a bad debt, but rather a casualty theft loss. It does not go on Schedule D, but rather Schedule A as a casualty loss. Even though it is on Schedule A, it is considered to be a "business" loss for purposes of the net operating loss calculation. It can, and many times does, create a net operating loss, which the taxpayer can carryback or forward, if they elect.

Maribeth

[Lion]

Specific

I remember some specific procedures for Madoff losses, and maybe others too, that sped up economic recovery for investors. But, I didn't have anyone hurt by Madoff, so don't remember what I read. Maybe, it was something like a percentage allowed now with the remainder when things are more final. Maybe, it had to do only with all the income investors reported over the years that was not really there.... Certainly worth a quick search to see if you can do something for your client sooner rather than later. Keep us posted.

[Possi]

Still, I should wait...

[QUOTE=Maribeth;101809]

I have a new client (last year) who lost money in the Ponzi scheme. He is still getting some of his money back as it trickles in.

I hope that next year, when he knows exactly how much he lost, I can take the bad debt write-off on the Sch D and keep it simple..

Am I right?[/QUOTE

If it truly is a Ponzi scheme, then it is not considered a bad debt, but rather a casualty theft loss. It does not go on Schedule D, but rather Schedule A as a casualty loss. Even though it is on Schedule A, it is considered to be a "business" loss for purposes of the net operating loss calculation. It can, and many times does, create a net operating loss, which the taxpayer can carryback or forward, if they elect.

Maribeth

... until he gets the settlement in 2010, shouldn't I? We think that should be the final payoff of whatever is salvaged.