There are several investments that turn out to be fraudulent schemes in which investors invest their hard earned funds and lose those funds because there was never in fact an actual investment that produced profits. Generally, those frauds are known as Ponzi Schemes.
Taxpayers who lose money in Ponzi Schemes may enjoy a tax advantage and recoup some of their lost funds by deducting their losses as financial theft losses. Deductions may be used against income that is being earned by the defrauded taxpayer, both before and after the fraud is discovered. There are several important rules that must be followed to enjoy this tax benefit.
The Safe Harbor Segment
In the event a taxpayer in a Ponzi Scheme is clearly a defrauded individual in a financial fraud and that the perpetrators are indicted for the fraud, the taxpayers can have an expedited procedure to deduct their losses from the taxpayer’s income and obtain tax refunds. This expedited procedure is only available in the event there is an indicted and/or proven criminal undertaking which led to the taxpayer’s losses. This is described in full in the “Safe Harbor
Have a question? Contact Richard Lehman. Your comments are always welcome.
Richard S. Lehman is a graduate of Georgetown Law School and obtained his Master’s degree in taxation from New York University. He has served as a law clerk to the Honorable William M. Fay, U.S. Tax Court and as Senior Attorney of the Interpretative Division in the Chief Counsel’s Office of the Internal Revenue Service in Washington D.C., the IRS’s internal law firm.
Mr. Lehman has had extensive experience with all areas of the Internal Revenue code that apply to American taxpayers and nonresident aliens and foreign corporations investing or conducting business in the United States, as well as U.S. citizens and domestic corporations investing abroad.
Mr. Lehman regularly works with law firms, accountants, businesses and individuals struggling to find their way through the complexities of the tax law.
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