New IRS Guidance for Ponzi Scheme Clawback Victims

For investors who need help from the IRS on how to treat clawback payments made to trustees, the IRS has published a new webpage.

So far the IRS has posted answers to two questions:

1. How does a taxpayer treat the repayment of a clawback?

2. What does the taxpayer need to establish as to whether the repayment of a clawback is allowable as a deduction (or a § 1341 credit)?

The IRS' efforts to assist Ponzi scheme victims is commendable, and the information provided should prove to be helpful. Still, any investor who has experienced the misfortune of having to write a check to the trustee of a Ponzi scheme on a clawback claim is strongly advised to seek professional assistance in properly determining the tax consequences. The last thing a Ponzi scheme victim needs is trouble from the IRS!

Tax issues arising in Ponzi schemes are addressed in Chapter 22 of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes (LexisNexis 2012).

Read additional articles at The Ponzi Scheme Blog

Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes  (LexisNexis 2012), along with Hon. Steven Rhodes.  The Ponzi Book is available for purchase at www.lexisnexis.com/ponzibook, and more information about the book can be found at www.theponzibook.com.

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