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can still deduct ponzi scheme loss?

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    can still deduct ponzi scheme loss?

    My client invested alot of money with a guy who promised guaranteed interest and even issued 1099-int's for huge amounts thru the years. Long story short, it was all fraud. Client took him to court and the scammer was indicted criminally in federal court on multiple counts of fraud. So in my research, my client would qualify to use the Ponzi Scheme loss with Rev Proc. 2009-20. I have done this for another client back on a 2012 return. So now my question is, with all the tax law changes, can you still use this Rev Proc 2009-20? Did the 2017 Tax Cut & Job's Act take THIS scenario away?
    Anyone here claim this on 2018 or 2019 return? TIA

    #2
    see if this helps with some guidance (provided by reply poster GeneV in a prior post):

    https://www.irs.gov/newsroom/help-fo...stment-schemes
    Always cite your source for support to defend your opinion

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      #3
      See TTB P. 4-22
      Uncle Sam, CPA, EA. ARA, NTPI Fellow

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        #4
        Looks like taxpayers can deduct deposit losses from a financial institution as a non-business bad debt where it becomes insolvent or goes bankrupt. A fraud or Ponzi scheme is not usually classified as a debt, but then neither is a deposit in a bank.

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          #5
          Originally posted by Burke View Post
          Looks like taxpayers can deduct deposit losses from a financial institution as a non-business bad debt where it becomes insolvent or goes bankrupt. A fraud or Ponzi scheme is not usually classified as a debt, but then neither is a deposit in a bank.
          A bank deposit is a loan from the customer to the bank, upon which market rate interest is paid at least annually -- how is that not a debt?

          Pub 529 seems to have a simple answer for the question about Ponzi-type losses, which has nothing to do with bad debts, business or otherwise:

          "Losses From Ponzi-Type Investment Schemes
          These losses are deductible as theft losses of income-producing property on your tax return for the year the loss was discovered. You figure the deductible loss in Section B of Form 4684. See the Form 4684 instructions and Pub. 547, Casualties, Disasters, and Thefts, for more information
          ."

          To answer the OP's questions about TCJA,

          "Note that the personal-use property limitation for tax years 2018 through 2025 does not apply to losses on income-producing property, such as losses from Ponzi-type investment schemes."

          Now, the question remains, was this really a Ponzi scheme? "Guaranteed interest" does not sound the same as an "investment scheme".
          Last edited by Rapid Robert; 10-05-2020, 10:30 AM.
          "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

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            #6
            Originally posted by Rapid Robert View Post

            "Note that the personal-use property limitation for tax years 2018 through 2025 does not apply to losses on income-producing property, such as losses from Ponzi-type investment schemes."
            Now, the question remains, was this really a Ponzi scheme? "Guaranteed interest" does not sound the same as an "investment scheme".
            Sure sounds like one to me. OP states guy who took the clients' money promised interest in exchange for investment principal. 1099's were apparently issued, but did client ever receive any of this money? Was the guy paying client from new funds received from newer clients? Did TP report it on his income tax returns? What did he think he was investing in?

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              #7
              And, what was the "guaranteed interest rate", and for what time period? And was it FDIC insured?

              Rant (not specific to OP's client, but people in general who fall for these schemes): why does the tax code make all the other taxpayers subsidize the poor decisions of of a few, who grab for the "too good to be true" profits? Suppose I invest $100K in a risky scheme that ends up being fraudulent, and ultimately get a $30K tax benefit (reduction in total liability including fed, state, etc) from writing off $100K. I've just foisted $30K of my risk-taking onto everyone else, that's how much I'm taking from the pockets of every other taxpayer.
              "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

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                #8
                You would think from all the publicity about Nigerian Oil in the 70's to more recent scams, that people would be forewarned about them. But greed supersedes common sense and is the overriding factor.

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