SIPC payments

[leerobea]

My client received a $2800 payment for her share of funds received from the Security Insurance Protection Corporation (SIPC). It was paid by the SIPC as a result of their determination that investors received money fraudulently or were complicit in the Madoff Ponzi Scheme.

HOW SHOULD THESE FUNDS BE RECORDED ON THE FORM 1040?

Thank you,
leerobea

[Kram BergGold]

My guess

These funds are a reimbursement of lost princapal. As such they are not taxable. I would not list them unless a 1099 form of some sort reproted them. If this happens I would use line 21 or some other line to wash it off the return.

[Gary2]

Did the client previously deduct any part of this as a casualty/theft loss? If so, you'll need to look into claiming this as a recovery.

[AZ-Tax]

Did they report loss on Sch D?

I am guessing if they reported the entire loss on Sch D, they will need to enter it as a gain on Sch D. Wouldnt it be the same as a stock the TP purchased for $3K outside TP's qualified plan. Stock becomes wothless but TP does not sell stock but reports $3K loss on Sch D. Stock price increases and TP sells stock for $1k next tax year. TP will need to report $1K on their Sch D.

[Dusty2004]

What if they already deducted this as a loss?

These funds are a reimbursement of lost princapal. As such they are not taxable. I would not list them unless a 1099 form of some sort reproted them. If this happens I would use line 21 or some other line to wash it off the return.

Then they would have to enter on Schedule D as a gain.

If it was from inside a Traditional IRA / SEP / etc they would have to report it as a distribution or deposit it within 60 days as a rollover.

Dusty