Tuesday, July 2, 2019

Changes Resulting From The Trump Tax Bill

The Tax Law Still Allows A Tax Recovery Of Financial Theft Losses

My experience of a small sample accountants and lawyers has revealed that many do not know that there still is a business tax deduction for Ponzi Scheme losses and similar financial frauds that were invested in for profit.

There also still is a “Clawback” or “mitigation” deduction available for investors that have made money in the Ponzi Scheme and must now repay to the investors that have lost money, the profits and at times the original invested principal of investors who profited from the fraudulent business scheme.

Consequently, there will continue to be a valuable deduction that can be as high as 50% of a tax on income; to those in the states and cities with high state and local taxes.

The tax benefits available to investors who innocently profited from the fraud and now must pay back the profits made in the theft and in some instances, the investors’ principal (capital) would be subject to a “Clawback”.  The Trustee must protect the innocent investor who lost money because of the fact there never was any profit at all, since the invested funds were paid to the fraudulent thieves.  This is called a “Clawback”.


Code Section 165(c)(2) and 1341 of the Internal Revenue Code provide great help for the defrauded investor.

There are three items that have changed in this area of the law as a result of the “Trump Tax Bill.”  The first is that starting in 2018 there is no longer the right to carryback losses from financial theft.  Deductible losses resulting from a financial theft may only be claimed in the year of the discovery of the theft and future years.

The second change is that tax rates have been lowered so that tax refunds that stem from post year 2018 financial theft losses, (not been discovered until after the year 2018 and after), may be refunded in a lower tax bracket than that which was available prior to 2018.

The third change in the law is the fact that the tax information Form 4684 that is used to report the theft loss has been clarified.

While a fraudulent theft loss in a trade or business or a for profit endeavor has been modified, that Code Section still provides for the deductible theft loss for a victim of a financial theft.  Code Section 165(c)(2) still provides for the deductible theft loss for a victim of a financial theft that amounts to a criminal act.

For your convenience we have posted the full article. The original is posted on Richard S. Lehman's website here: www.LehmanTaxLaw.com

Thursday, May 23, 2019

The Ponzi Clawback And The Value Of The Mitigation Procedure

A Ponzi Scheme Clawback of profits is typical in many Ponzi Schemes.

Ponzi Scheme Trustees appointed to achieve fairness among defrauded investors have successfully recovered billions of dollars from Ponzi Scheme investors who withdrew funds from the Scheme even though there were indeed no real profits at all in a Ponzi Scheme. Everyone but the promoter eventually loses money. The promoter usually goes to jail and losses money.

 Those investors lucky enough to have escaped the Ponzi fraud and taken their profits early in the scheme, remained profitable until the Trustee “CLAWED BACK” their false profits.

 A Ponzi Scheme “Clawback” is accomplished when a Trustee obtains refunds from those who benefitted from the early “profits distributions” by the Ponzi Scheme.

 Clawbacks of Ponzi Scheme profits from the innocent investor who first benefitted from the Scheme can receive a unique treatment from a tax standpoint. This is because of a special Internal Revenue Code Section that applies to clawed back profits. READ FULL ARTICLE HERE

Wednesday, March 27, 2019

This video has been completely updated to reflect the new Trump Tax Cut And Jobs Act of 2017

The Trump bill eliminated the loss carryback rules, it did not eliminate the rules under the Mitigation Section. 

Taxpayers who are forced to repay false profits may still reduce the income falsely reported in the prior years, if that provides a larger tax refund than the refund that would be available if the "clawed back" funds were only allowed to be deducted in the year of payment.

This tax benefit cannot be overlooked.

Starting in 2018, it is critical to compare the amount of refunds on a Clawback of profits with the value of deducting the Clawback amount in the year it is paid back.

Richard S. Lehman, Esq.
United States Taxation and Immigration Law, LLC
2600 N. Military Trail, Suite 206
Boca Raton, FL. 33431

Tel: 561-368-1113
Fax: 561-981-8203
Skype: LehmanTaxLaw

Saturday, July 7, 2018

Has the Trump Tax Cut and Jobs Act made business theft loss deductions and losses less valuable?

Ponzi Scheme Theft Loss

Ponzi Scheme Theft Losses may have become less valuable for tax purposes because of the Trump Tax Cut and Jobs Act that was signed into law in December of 2017. That tax bill lowered tax rates in the future and also reduced the value of Ponzi theft loss deductions by eliminating the right to carry back losses and receive tax refunds from earlier years. Loss carrybacks have been eliminated. There are only loss carry forwards available from 2018 forward.
What this could mean, (for example) is the following:

The “Profits Years”

Assume a wealthy investor had profited from Ponzi Scheme income in one of the states with high taxes and in a tax year where that total income tax was more than 50% due to the effect of the combined top rates of say New York City, State and Federal income taxes on Ponzi Scheme $500,000 of earnings per year. Assume this occurred every year for three years starting in 2015. The Taxpayer will pay total taxes of $750,000 over the three-year period (2015 to 2017) on the profits.
Assume in 2021 that taxpayer learns that the $1,500,000 in profits for the years 2015, 2016, and 2017 was illusory and never existed. Assume in 2021 that the taxpayer now has a theft loss deduction of $1,500,000 because the gross profits were left in the Ponzi Scheme and ultimately lost by that taxpayer. Now, assume that by 2021 the taxpayer has retired to one of the United States that has no city or state income taxes; and assume the retired taxpayer has a reduction in income and now pays taxes in the 20% tax bracket. As a result of the new tax cuts, the Ponzi theft loss deduction that is allowed on the $1,500,000 loss may be worth only $300,000 in refunds at a 20% tax rate.
The taxpayer in this example will have paid taxes on taxable income equal to fifty cents on a dollar ($750,000), and will receive tax refunds at twenty cents on the dollar, ($300,000). Furthermore, the taxpayer may need to wait many years into the future since there is less taxable income in each of the later years upon which to collect the refund.