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Ask A CPA - Ponzi Scheme Losses

Ponzi Loss Recovery - Safe Harbor/Tax Benefit Rule

If the taxpayer using the optional safe harbor provided in Rev. Proc. 2009-20 claimed a deductible theft loss in 2009 equal to 95% of the total qualified investment, reduced by amounts the taxpayer reasonably expects to recover from insurance or from the Securities Investor Protection Corporation (potential insurance/SIPC recovery, then the taxpayer does not have income in the current year under the tax benefit rule. As the taxpayer properly reduced the deductible theft loss by the potential insurance/SIPC recovery in the year of loss, when those amounts are recovered in the current year the taxpayer does not have to report the recovery as income under the tax benefit rule.

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