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I had a 1099-C for about $135,000. My husband didn't have any withholding on Social Security. His employer couldn't withhold due to incompetence. I felt utter dread wash over me. Memories of owing the IRS before were constantly on my mind. I called a local CPA. Besides being clueless, he wanted to charge me for every question I had about insolvency. I looked on line and found little hope of the countless stories of permanently disabled people like myself getting their student loans forgiven only to be asked to pay taxes on it as if it were income.
Somewhere, somehow, I find an article by Gary Bode. I bookmarked it for when it's time to do the actual taxes. With his excellent help in how to do all of this out of a virtual office I get my part of the work done. My questions got answered, for free. I give a retainer, do what I said I did and wait. I hear from Gary. I go into shock! How can this be? Not only do I not owe on the 135,000....Gary itemizes and after paying what was almost nothing in taxes we get $950.00 back! No more hubby doing the taxes online! I will use Gary Bode as long as he will agree to work with me!
It was so easy, no worries, but professional and top notch. I know I have thanked you Gary but I am so grateful. Thank you ever so much again!

Carla Bray

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Ponzi Scheme CPA talks about Investment Fraud | IRS tax Form 4684 Casualties and Thefts | Schedule A Itemized Deductions

Ponzi Scheme CPA, IRS tax Form 4684, Casualties and Thefts

Ponzi schemes and investment fraud have financial and emotional ramifications. But maybe I can help you re-coup some of the loss through IRS Form 4684. Our virtual office means we can help regardless of your location. (910) 399-2705.

As a Ponzi Scheme CPA, I’m always surprised by the sheer number of investment fraud cases. Ponzi schemes occur in clusters. So sometimes a CPA might have 25+ cases involving the same criminal. This post discusses recouping Ponzi scheme losses on your income tax return by using IRS tax Form 4684, Casualties and Thefts. I’ll cover the most common questions I get. Hope it helps.

Don’t use Line 20 of Schedule A for Ponzi scheme and investment fraud losses

Form 4684, Part I, Casualties and Thefts flow to Line 20 of Schedule A, Itemized Deductions. You don’t want it to flow to line 20 for Ponzi scheme or investment fraud. Clients tell me TurboTax and H&R Block software won’t let them avoid Line 20. My guess is that most tax software requires a manual workaround to get it right. Line 20 has restrictions that won’t give you the highest deduction:

  • First your total Schedule A itemized deductions must exceed the standard deduction for 2013.
  • Next there’s a 10% of Adjusted Gross Income threshold your Ponzi scheme losses must exceed. I’ve seen this wipe out all the potential tax benefit of a Ponzi scheme loss.
  • There’s a per event “deductible” – go figure.

 Pros – Use IRS tax Form 4684, Part II for Ponzi scheme and investment fraud losses

  • Here you get to deduct the Ponzi scheme losses without the 10% AGI threshold of IRS Form 4884, Part I.
  • You don’t “deduct” and lose the per event “deductible.”
  • You deduct the full deduction of the allowable loss regardless of your Itemized Deductions or Standard Deduction.
  • You get to carry the Ponzi scheme loss forward and backward to other tax years. This allows you to shift losses to where they generate the biggest benefit.
  • You avoid the $3000 per year limitation on capital gains.
  • You either get a tax refund or pay less tax. How much? About 25-30% of the allowable Ponzi scheme loss.
  • Sometimes there’s a refund for taxes paid on fictitious income.

Cons of using Form 4684 Part II

  • Generally you claim the loss in the year it was discovered. This means amending a earlier tax return using IRS Form 1040-X and Form 4684, Part II.
  • Some tax software doesn’t support Ponzi scheme or investment fraud losses.
  • You can’t use Form 1040A or Form 1040EZ.
  • There’s a 75% or 95% “safe harbor,” that means you can’t claim the entire loss. It depends on whether any potential recovery exists.
  • You must report any future reimbursement for the loss. Unfortunately that seldom happens.
  • The large deduction warrants good documentation and a concise explanation along with the amended tax return.

I’m a Ponzi Scheme CPA with a virtual office. I’m sorry you lost money from investment fraud. You’ll never re-coup all your loss. Plus the theft itself has a big emotional impact on Clients. But I’ll help you make tax lemonade out of investment lemons. For a free phone consult on Ponzi scheme losses and Form 4684 call (910) 399-2705.

 

 

 

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3 comments to Ponzi Scheme CPA talks about Investment Fraud | IRS tax Form 4684 Casualties and Thefts | Schedule A Itemized Deductions

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