IRS Publishes Ponzi Scheme Guidance to Assist

By Richard M. Goldstein

IRS Publishes Guidance

On March 17, 2009, the Internal Revenue Service issued two items to assist taxpayers who are victims of losses from Ponzi-type fraudulent investment schemes. The first item is a revenue ruling that clarifies the income tax law governing the treatment of losses in fraudulent schemes. The second is a revenue procedure that provides a safe-harbor method of computing and reporting the losses.

The revenue ruling is important because determining the amount and timing of losses from these schemes is difficult and dependent on the prospect of recovering the lost money. The revenue procedure simplifies compliance for taxpayers by providing a safe-harbor means of determining the year in which the loss is deemed to have occurred and a simplified means of computing the amount of the loss.