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CRYPTO SCAM Take a theft loss as a Ponzi Scheme Scam?

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    CRYPTO SCAM Take a theft loss as a Ponzi Scheme Scam?

    I have a client that was scammed into investing into Crypto. The lady "Jessica" told him that if he would invest $500K that she would match him. And so he did. They started making money and when he went to cash some out, he was told to pay more money to get access to it. This client lost $500K. Which he had withdrawn out of his IRA.

    Can we use the Theft Loss deduction for Ponzi -Type investment Scheme on Form 4684? See page 4-22 in TTB. Perhaps use the Rev Proc 2009-20 or is it Rev Proc 2011-58 now?

    He is not the only one... so what can we do for these people?

    "He is not the only one... so what can we do for these people?"

    I'm glad you opened this up to a general discussion, as I am not addressing your specific question here.

    Instead, I have to wonder, how many of "these people" are themselves scammers, trying to get a fraudulent tax deduction? What kind of due diligence can or should a practitioner do to verify that the money was truly "scammed", as opposed to, for example, Jessica in the OP actually being a partner in crime? How convenient these days to incant "crypto" and hope everyone concludes that oh, there is no way to prove it or track down the alleged scammer, so I guess we just have to believe whatever the alleged victim tells us.

    And what is the legal definition of "scammed", anyway? Isn't it really just a matter of applying the old adage, "a fool and their money are soon parted"? If people in this situation are not actively seeking to defraud via tax filings, then I can only conclude they are pretty foolish. I mean, how does someone have the mental acuity to accumulate half a million dollars in an IRA and then not question even a little this too-good-to-be-true new investment opportunity? And especially, not question the tax implications of taking so much money all at once from their retirement plan?

    This is perhaps one area where I would agree with many who hold very different political views from mine: why should taxpayers subsidize other people's unforced poor choices and self-inflicted harm?

    "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard


      In keeping with the open discussion, I predict tax practitioners will be seeing the fall out from these Employee Retention Credit programs being touted on every other commercial. Is it a scam? Kind of BUT if you allow someone to file an amended return without at least reading the IRS warning then you have to admit culpability. The same way you cannot claim to be a victim if you willingly invest with someone who promises guaranteed high returns with no risk. In regard to the ERC filings I think there will be blatant fraud just like we saw with PPP the difference being ERC requires you to claim a properly filed return was missing a credit that you should know you are not entitled to (and if you run a company you are assumed to have a working knowledge of your filings the same way the IRS will assume someone with a certain level of education understands tax code), thus complicity seems present.

      IR-2023-40, March 7, 2023 — The Internal Revenue Service today issued a renewed warning urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as promoters continue pushing ineligible people to file.
      "Dude, you are correct" Rapid Robert