Dick Adams wrote:
- quote -

No matter how you has it, it's still a "Ponzi" scheme, where
subsequent investments (or loans in recent years) have to be
taken in to pay off the first ones in (FIFO??? lol)

A client got involved in this maybe ten years ago. His
brother in law introduced him to the head of it, who had all
these computers and printers hooked up to impress new
pigeons. Monthly print outs were furnished detailing all
the transactions, 100 shares of this, 500 of that, etc.
But the real kicker is that his investment of 40,000$ or so
was in a trust. Therefore, according to the "trust"
document, two pages typed, no tax consequences would follow
until funds were withdrawn or the trust terminated. The
head man was treasurer of a local big church, respected in
the community, a large sized Alabama city, and at the
bottom of the trust agreement the statement (can't quote it
verbatim now but gist of it is "This trust executed this
... day of ..... 199x to the Glory of God and HIs Son ...
etc etc."

Don't have to tell you how it all turned out I spose.

Cheer$,
Harlan Lunsford

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Dick Adams wrote:

- quote -

Due to the fact that there WASN'T any actual capital gain,
even though (I assume) a 1099 was issued, I agree with your
take. As AG pointed out, the theft loss is to be taken this
year (the year of discovery), or a later year if recovery
becomes unlikely. (I think recovery is unlikely NOW, but
that also depends on facts and circumstances.)

It should be pointed out that the increased tax for 1999,
although not recoverable from the IRS, looks like it might
be an additional theft loss.

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -


He put in $33,000 and had paid cap gains of $60,000.
Assuming he only paid taxes on REALIZED cap gains (in other
words after he got the cash) I see no loss, although I am
most likely missing something important.

A ponzi scheme is not a bad thing if you get in early enough (g).

--
It has been my experience that many of those who most loudly
proclaim their right of free speech would be better served
invoking their right to remain silent.

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Dick Adams <rdadams[at]smart.net> wrote:
- quote -

After sending my last response, I thought about this some
more. Where a taxpayer is reporting income that it later
turns out was overstated, the taxpayer would amend the prior
return. I see no reason why bogus investment returns would
not fall into this category. In fact, I think the IRS would
insist that amending a prior year's return is the only
option available to the taxpayer. And...... the IRS would
probably invoke the 3 year rule for amending. Any bogus
gains reported as income that go back beyond the 3 year
window would probably be disallowed as a theft loss. Only
the original investment would fall into the theft loss
bucket.

Alan
http://taxtopics.net

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Dick Adams <rdadams[at]smart.net> wrote:
- quote -

In many of these schemes, amounts credited to an account may
be real at the time. Money from new suckers is being used
to pay the original suckers. Is it not possible that the
funds were there back in 2002 and 2001 and only disappeared
when the whole scheme collapsed?

Alan
http://taxtopics.net

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"A.G. Kalman" <agk202[at]netscape.net> Dick Adams <rdadams[at]smart.net> wrote:

- quote -

I would agree except that Ponzi schemes involve loans.
Here there were alledged equity transactions supposedly
supported by periodic documentation.

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

I haven't seen one of these in some time. It sounds like a
ponzi scheme. I believe that Section 165 requires that you
take a loss deduction for theft in the year the theft is
discovered. In addition, one can't take the deduction if
one has a claim for reimbursement and there is a reasonable
prospect of recovering the funds.

So... it would seem that if the theft was discovered in 2003
and there is no reasonable prospect of recovery, the taxpayer
could take the theft deduction in 2003. The amount of loss
would be the sum of any amount the taxpayer contributed plus
any income declared as gains in prior years. No amending of
prior year returns would be allowed.

Alan
http://taxtopics.net

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Taxpayer opened a brokerage account in 1999. $12,000
was deposited in 1999 and $21,000 in 2001. The account
was managed by a broker who did very well. There were
capital gains of totalling $60,000 for 1999 through 2002
and the taxpayer paid the taxes out of pocket.

Surprise, surprise. There was no brokerage account.
Taxpayer comes to find out he, the friends he advised,
and others are victims of mail fraud.

My take is to amend 2000, 2001, and 2002 to recover the
capital gains tax and take the remainder as either a
capital loss or a theft loss based on individual facts and
circumstances. Any thoughts?

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