IRS Offers Safe Harbor for Losses from Ponzi Schemes

In view of the number of investment frauds recently discovered, and the potential scope of the losses, the Internal revenue Service recently adopted a Revenue Ruling (#2990-9) and Revenue Procedure (#2009-20) aimed at avoiding difficult issues of proof as to how much income reported in prior years was fictitious. The new safe harbor procedure applies to losses discovered in a tax year beginning after December 31, 2007. It allows a deduction of 95% of the loss for investors with no potential third-party recovery, and of 75% for investors with potential third-party recovery.