The Bernie Madoff Ponzi scheme is just one of many to pop up over the past 18 months. One good thing about the financial meltdown: The lack of new incoming investment cash exposed lots of Ponzi schemers. Another good thing: The Ponzi losses were so large that they moved both lawmakers and the IRS to helpful actions.

Lawmakers included Ponzi scheme victims in new 2009 legislation that allows up to a five-year carryback period to obtain tax benefits from the losses.

The IRS issued safe-harbor treatment for those claiming Ponzi scheme losses. You might think it ridiculous that the IRS has to issue a safe harbor for deducting a theft loss from a Ponzi scheme. After all, you lose real money here. What could complicate the tax deduction?

As you will learn in this article, claiming a deduction for any theft loss requires establishing highly factual proof that often cannot be accomplished by taxpayers in the year they are supposed to claim the deduction.1 This makes this new safe harbor important.

This article gives you the nuts and bolts of what you need to do taxwise when you suffer a Ponzi scheme theft loss. It explains the following:

The IRS threats, including possible audits, to your Ponzi scheme theft loss should you decide not to use ... Log in to view full article.