Can I write off Ponzi scheme investment losses on tax return?

Your dad should definitely be able to claim this as a theft loss. The IRS has specific provisions for Ponzi scheme victims. Since this was declared a Ponzi scheme by the SEC, that makes the process more straightforward. He'll need to file Form 4684 (Casualties and Thefts) and likely Form 8949 for capital losses. Make sure you have documentation of the original investment, the SEC case information, and settlement details showing how much he recovered. Unlike regular capital losses that are limited to $3,000 per year against ordinary income, qualified theft losses from Ponzi schemes are often treated more favorably. Since this happened in 2021, he should be able to carry back the loss to previous tax years or carry it forward, potentially generating refunds from prior years' taxes.

I went through something similar with my mom last year and used https://taxr.ai to help sort through all the documentation. The SEC settlement paperwork was super confusing, and my mom had basically given up on trying to recover anything tax-wise. Their system analyzed all the documents (SEC filings, original investment paperwork, bank statements) and actually identified exactly how to classify the loss properly. It saved us from miscategorizing it as a capital loss when it qualified as a theft loss with better tax treatment. They even generated the completed form attachments for her return.

I tried https://taxr.ai after reading about it here, and it really helped with my brother's situation. We had a similar Ponzi scheme loss but with way more complicated documentation because the investments were spread across multiple entities. Their document analysis identified that part of his loss qualified as a theft loss and part needed to be treated as a capital loss due to how the investments were structured. This was something our regular tax preparer had completely missed. It ended up saving him almost $30k in taxes through proper classification and by identifying which previous tax years he could carry back the losses to. Just wanted to share since this thread helped me find a solution that actually worked!

Has anyone tried calling the IRS directly about Ponzi scheme losses? I've been trying to get clarification for weeks and can't get through to anyone who knows what they're talking about. Just get transferred around until someone hangs up on me. I found https://claimyr.com and their video explanation at https://youtu.be/_kiP6q8DX5c - they claim they can get you connected to an actual IRS agent without the endless hold times. Has anyone used this for complicated tax questions like Ponzi scheme losses?

I actually tried Claimyr last week after seeing it mentioned here. I was trying to get clarification on how to document a Ponzi scheme loss since my situation had some unusual elements (part investment, part loan to the fraudster). I was connected to an actual IRS agent in about 20 minutes, which honestly shocked me after my previous attempts. The agent transferred me to someone in their investment loss department who walked me through exactly what documentation I needed and confirmed that I could deduct the full amount as a theft loss rather than a capital loss. I was absolutely prepared to come back here and call BS if it didn't work, but it actually saved me hours of frustration. Just make sure you have your specific questions ready when they connect you.

Just a heads up, my accountant advised me that there's a specific IRS Revenue Procedure (2009-20) for Ponzi schemes. It creates a "safe harbor" rule that can make the loss deduction more straightforward if your situation qualifies. Basically lets you claim 95% of your net investment as a theft loss in the year of discovery without having to wait for the final resolution of all recovery efforts.

Another thing to consider: if your dad itemizes deductions, he may need to reduce the theft loss by 10% of his AGI and $100. But if he can claim it as an investment theft loss on Schedule A (instead of a capital loss), he won't be limited to the $3,000 annual deduction limit for capital losses.

Based on what everyone's shared here, it sounds like your dad has a solid case for claiming this as a theft loss. The key points I'm seeing are: 1. Make sure you have all the SEC documentation proving it was officially declared a Ponzi scheme 2. Use Form 4684 and possibly Form 8949 as mentioned by Ravi 3. The timing matters - claim it in the year the SEC declared it fraudulent, not when he invested 4. Revenue Procedure 2009-20 could be your best friend here - lets you deduct 95% of the loss right away Given that your dad is on a fixed income and this hit him so hard financially, I'd really recommend getting professional help to make sure you maximize the tax benefits. Whether that's a CPA experienced with investment fraud or one of those document analysis services people mentioned, the potential tax savings could be substantial. Also document EVERYTHING - bank statements, original investment paperwork, SEC filings, settlement details. The IRS will want a clear paper trail showing the original investment amount and what was recovered. Hope your dad can get some financial relief from this terrible situation!