Quoted from dgoett:
I have a question and forgive me if it's been asked or answered in this giant cluster of a tread.
Is there a way to show a loss on taxes for the $4750 I had in Predator? I have all the paypal receipts.
Or can I not do that with open litigation [even though I'll never see a penny back].
I'm aware you can only show $3K a year but just curious.
This is a quote from a pinhead on RGP that I saw a few years ago on this topic, I talked to an accountant who said its legit but please due your own DD.
People have asked me "what are you doing about *******?" Are you joining the lawsuit? When you enter into a money and time consuming lawsuit, you should only do so if you have a meaningful chance of recovery. So, in trying to think of the best outcome for everyone who got caught up in this shitstorm, I would suggest you consider taking your loss as "casualty or theft loss" on your 2015 federal tax return.
It turns out that the IRS allows you to deduct losses for "casualty or theft" as an "ordinary loss" which means it is a loss that offsets ordinary income. The other type of loss is a "capital loss" which offsets capital income or income from stocks and securities. An ordinary theft loss is for when someone's home is broken into and money or other items are stolen or for when they are defrauded in a Ponzi scheme.
Under section 165(a) of the IRS tax code, the IRS allows for deductions for "losses sustained during the taxable year and not covered by insurance or otherwise....and allows a deduction for certain losses not connected to a transaction entered into for profit, including theft losses".
The good news is that these "ordinary losses" are "front page" deductions that are direct offsets to net income. In fact, after the Bernie Madoff scheme was discovered the IRS created a so-called "safe harbor" where if certain criteria are met, your theft loss deduction is not subject to an audit. If you use this "safe harbor" you cannot sue Popadick to recover your funds and you agree that this is your only remedy. I would suggest a discussion with your tax advisor and to do some back of the envelope calculations and you may discover that this is your best outcome. You will not be able to recover all of your loss, but you should be able to recover some of it using this approach.
After Bernie Madoff "made off" with everyone's money, the first question the IRS answered for those investors was that they could take an ordinary loss deduction and the deduction isn't subject to the 2% of adjusted gross income (AGI) limit on miscellaneous itemized deductions, the income-based limitation on itemized deductions, or the 10% of AGI limitation on the deduction for casualty losses.
You have to take the deduction in the year that the theft was discovered and if you have insufficient "ordinary income" to cover the amount of the loss, then your "casualty or theft" loss can be carried back 3 years against other returns whereas net operating losses are typically limited to just two years.
The IRS published these rules under Rev Proc 2009- 20, 2009-14 IRB 735. To qualify for relief under Rev Proc 2009- 20, 2009-14 IRB 735, you must file Form 4684. Even if you tax advisor does not think that your loss qualifies under this rule, it likely does qualify under other "casualty or theft" loss rules. State tax laws are different and you may or may not be able to take a deduction under your state's income tax laws."