The Sam Bankman-Fried, FTX fraud is a Ponzi scheme and losses from Ponzi schemes are acknowledged by the I.R.S to be “theft losses”. They are deductible from a taxpayer’s ordinary income.
The theft loss tax deduction is an extremely valuable tax deduction and for many victims of the FTX fraud the deduction will have a cash value equal to 35% or more depending upon state and city income taxes. Investors who are subject to federal, state, and city income tax may find that their recovery from the tax loss is equal to almost 50% of their theft loss.
Richard S. Lehman, Esq.
Lehman Tax Law
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