Help on claiming loss- unusual situation

[GradyFinance]

I have a client, actually an employee, who has a capital loss I'm not sure how to show. Here's the scenario:
She and her husband (along with alot of other people) invested approx 30,000 in a local financial company under the guise of a subordinated debenture bond.
After several years the company went bankrupt. The remainder of their investment, about $3,000 was rolled into a IRA under the directive of the bankruptcy court until the assets of the company could be liquidated. She eventually received option from the bank the IRA was held at to redeem it. She did and received $3142 as
a IRA distribution. How can I show this loss? It's technically not a sch D loss since it was not an investment that was sold but rather dissolved and liquidated.
Can someone shed some light on how to handle this?
Thanks,
Ed Robinson

[Burke]

Wow, that is unusual. Why was it rolled into an IRA? Was the original investment a tax-sheltered retirement plan? Doesn't sound like it if they put $30K in it all at once, unless these were qualified funds rolled into this (qualified) investment to begin with. Were they actually eligible for an IRA in the year it was "rolled over?" (Unless it was a qualified plan before, they would not have been eligible to roll it over into an IRA.) If this investment was NOT qualified funds, then the $3K should have been treated as proceeds in the year it was put into an IRA, and a capital loss taken on the investment. Then they would have a basis to deduct now. So the only income would be the earnings. More details please, including the year(s) these events occurred.

[GradyFinance]

I have a client, actually an employee, who has a capital loss I'm not sure how to show. Here's the scenario:
She and her husband (along with alot of other people) invested approx 30,000 in a local financial company under the guise of a subordinated debenture bond.
After several years the company went bankrupt. The remainder of their investment, about $3,000 was rolled into a IRA under the directive of the bankruptcy court until the assets of the company could be liquidated. She eventually received option from the bank the IRA was held at to redeem it. She did and received $3142 as
a IRA distribution. How can I show this loss? It's technically not a sch D loss since it was not an investment that was sold but rather dissolved and liquidated.
Can someone shed some light on how to handle this?
Thanks,
Ed Robinson

Getting details together on initial investment. Stay tuned.

[Koss]

Fraud?

The original post says that the client invested money "in a local financial company under the guise of a subordinated debenture bond."

Maybe I'm reading too much into it. But it sounds like they thought they were buying a bond, when in fact it was something else.

Was the investment misrepresented? Was it even a legitimate investment? Or was it a ponzi scheme?

There are special rules for deducting this type of loss.

That does not explain how the money wound up in an IRA...

BMK