The Expert Podcast

…Okay So as a victim of a Ponzi scheme or a scam or some kind of online fraud, In addition to trying to recover assets from that scam One of the other questions that comes up is can I deduct those losses off my taxes? This is a very common question that comes up Look. If you put money in and you show a big profit. You would have to pay tax on that. However if it turns out to be a scam, those profits are really an illusion and that might affect. your taxes Now remember we're not tax attorneys tax accountants, we're not giving you legal advice or accounting advice. We're just. Showing you what we've seen in the operations of fraud recovery and fraud investigations. The IRS has a very specific procedure for how to determine losses from a fraud. Here's a printout from their bulletin. Section 1 65 losses. In the 26 code. Section…If it's a loss from a criminal fraud or embezzlement. That's. Subject to personal loss limits or the limits of itemized deductions. You have to go through a process of determining what year the loss happened And more importantly…was this. Scam or a Ponzi scheme. Already established as a loss Remember in the Bernie Madoff case in 2008, they didn't come out with rules about this until 2009. So for many victims of a fraud or scam, you may have to wait. Until the perpetrator is charged. Or arrested. Or the scam itself has been determined to be a fraud because in the meantime, It's still may be. Established. As a profitable ongoing enterprise So if you have financial statements one of the reasons this comes up as a big. case with the FTX cryptocurrency fraud…It may still be that your statements showing your profit might be the determining factor on your taxes. And it might not be fair because you can't access that money. Right So if you put in $10,000 and it went up to a hundred thousand dollars, you might have a $90,000 paper profit You have to pay taxes on. If the perpetrator of this alleged fraud is not arrested or there's not any determination for awhile. You may not be able to show that as a loss until that's done. So use these rules. CFR. 26 CFR. As a guideline. With your tax accountant. To determine whether or not you can deduct these losses. In some of these fraud cases you actually have to maybe file an extension…Until the fraud is actually. Prosecuted. Right. In the meantime certainly continue your asset recovery. Process to try to get your assets back. But…At the same time consider what the tax implications are going to be. For your paper profit and your eventual fraud loss.