Deduct your Ponzi scheme losses

The IRS will let you deduct your losses from Ponzi scheme ripoffs. No word on whether losses due to the wire, the pigeon drop, advance payment or three card monte are allowable, but I'm gonna claim 'em anyway.

The IRS has announced it will allow favorable ordinary loss treatment for investment theft losses. Basically, such losses occur when your money is never actually used for the intended purpose of acquiring investment assets.

Instead, the money is hijacked by the perpetrator of a fraud. The classic example is the so-called Ponzi scheme where money collected from later "investors" is used to cover "income distributions" and "withdrawals" paid to earlier "investors" without any investments ever actually being made.

Taxpayer-friendly ordinary loss treatment takes some of the sting out of Ponzi scheme losses. Unfortunately, however, there are plenty of victims who can benefit from the IRS's enlightened attitude. Not only did Bernie Madoff lose some $65 billion of investors' money, but other similar frauds have since come to light. The sad truth is, Ponzi losses are more widespread than you might think.

Tax Breaks for Ponzi-Scheme Victims

(via Consumerist)