To provide at least some background information, a loss incurred in connection with a Ponzi scheme is an itemized deduction and thus, after being entered on Form 4684, it will appear on Schedule A, Itemized Deductions. TurboTax does not support Form 4684, at least in the Step-by-Step section. Thus, assuming you feel confident that you can claim such a loss, you will need to go into Forms mode in TurboTax. Forms mode is only supported if you are using TurboTax CD/download versions. To go into Form mode, select Form in the upper right of your screen. You will have to enter Form 4684 in the search bar and select the Casualty & Theft Worksheet. Enter a description. Click on Add Form.
Then follow these steps:
- You will now see the Casualty & Theft Worksheet. The description you previously entered will appear on Line 1.
- On line 2, enter the date. Then go to line 5(c) and check the box.
- Go back to Open Forms (upper left of screen), enter 4684, and from the drop-down list, select Form 4684 p3: Casualty & Thefts.
- You will now see Form 4684, p3, Section C. Enter your information on lines 40 – 51.
- On line 46, when you enter the appropriate percentage, TurboTax will calculate the amount of your deductible theft loss.
- You will also need to complete Part II, of Section C, Form 4684.
Lastly, we strongly encourage you to review IRS Rev. Rul. 2009-9, and Rev. Proc. 2009-20--as to the proper treatment of losses from certain investment arrangements later discovered to be fraudulent. The former addresses the tax treatment of losses from Ponzi schemes in the light of section 165 of the Internal Revenue Code. The latter provides an optional safe harbor under which qualified investors may treat a loss as a theft loss deduction when certain conditions are met.
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