Ponzi loss

How would you show a Ponzi loss of lets say $3900 on a 1040 form on any line other than line 40? I have seen info about using Proc. 2009-20, form 4684, and schedule A, however, the final step seems to lead to transferring an amount to line 40 of 1040 form. The standard deduction of $5950 for single filers is more than the Pozni loss so naturally it would be used instead of the Ponzi loss therefore not allowing you to show the loss. Any ideas?

Answer :

1 : Correct;UNLESS you itemize your deductions on Sch A of 1040, you can’t deduct the loss on your return.

2 : There are many ways to recover valuable income tax refunds from losses from financial crimes that are either not actual ponzi schemes or that are Ponzi Schemes that do not fit the standards of the safe harbor. However,the tax law permits tax deductions for losses from financial fraud under the theft loss deduction category on form 4684 and Sch A of 1040. The IRS issued two guidance items to assist taxpayers who are victims of losses from Ponzi-type investment schemes. The first item is a revenue ruling that clarifies the income tax law governing the treatment of losses in such schemes. The second is a revenue procedure that provides a safe-harbor method of computing and reporting the losses.The IRS will let you go back 5 years versus the normal 3 year limitation to claim the losses. In addition, rather than use the limitations used with normal theft and casualty loss claims, the IRS has implemented a simpler method which enables individuals and companies to claim a greater deduction. QUOTE,” The IRS issued two guidance items to assist taxpayers who are victims of losses from Ponzi-type investment schemes. The first item is a revenue ruling that clarifies the income tax law governing the treatment of losses in such schemes. The second is a revenue procedure that provides a safe-harbor method of computing and reporting the losses.The IRS will let you go back 5 years versus the normal 3 year limitation to claim the losses. In addition, rather than use the limitations used with normal theft and casualty loss claims, the IRS has implemented a simpler method which enables individuals and companies to claim a greater deduction.The percentage of the qualified investment which can be claimed is ;95% of for investors with no potential third-party recovery and 75% for investors with potential third-party recovery.

The method of computing and reporting the losses follows:On Appendix A of IRS Rev Procedure 2009-20 enter the loss information. Part II line 5 enter loss, multiple by 95% of the qualified investment (i.e., $30,000 x .95 = $28,500) and enter on line 6.On line 9 enter any money received or recovered from the Ponzi scheme (i.e., $28,500 – $3,000 = $25,500), subtract line 9 from line 6 and enter the amount on line 10.Take the amount from line 10 and enter the amount on line 34 of form 4684 Section B. You may want to enter the Name of the Ponzi..Read more…