Ponzi Schemes Here I Come

[Terry D EA]

I posted earlier about a situation with deducting a loss of a Ponzi-scheme. Just spoke with the client that was a victim of a Ponzi-scheme and a victim as well of an ex HRB employee that claimed a capital loss when it should have been a theft loss. This couple is willing to have me amend the returns to correct the wrong filings. Told them it could be costly but they have the responsibility to file an accurate tax return. A mistake was made and it should be corrected. The accepted and I will be amending a few years worth. Now, I guess I will be the Ponzi-scheme expert as they are sending me two or three more clients who were victims of the same scheme and HRB ex preparer. I like the extra business but wrong time of year to do a bunch of amendments. April 18 is the last day to amend a 2012 tax return to collect a refund correct?

[Gail in Virginia]

If the original return was on extension, you have three years from the date the return was filed provided it was filed by October 15, 2013.

[jklcpa]

From the 1040X instructions:

• Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. If you filed your original return early (for example, March 1 for a calendar year return), your return is considered filed on the due date (generally April 15). However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it July 1, your return is considered filed on July 1.

 

[Terry D EA]

Thanks to the both of you. I replied in another post that these returns were filed by April 15th and not on any extensions. Due to the complexity of this, I want to be absolutely sure that I am handling this correctly. These things are weird and apparently not a lot of folks on this board has dealt with them. The person who has prepared the returns for these clients is an ex-HRB employee who classified them as worthless stock and therefore justified the capital loss method. However, the code is real clear on the fact that a Ponzi-scheme is not a capital loss but a theft loss reported on Sch A using form 4864. This person has prepared quite a few returns for victims of this scheme in my immediate area So, with that said, I may see additional work coming in. One guy is going back to this person again even after being shown the code indicating his returns have been filed incorrectly. His call completely.

Just for anyone's curiosity, the Ponzi-scheme I am speaking of was the ZeekRewards which is labeled one of the largest Ponzi-Schemes next to the Madoff scheme.

[kcjenkins]

well, as to the 3 yr rule, that's only relevant if the amendment generates a refund.  so if it will increase tax owed, no problem doing it after April.

[Terry D EA]

Thanks to all who replied. I have completed the 2012 amendment and it does generate a refund and I will have these folks sign and mail the return this weekend. Moving forward, the refund generated from the 2012 error from both Fed and State, covers the balance due for amending the 2013 and 2014. My suggestion to these folks is to wait to get the refund, then send in the 2013 & 2014 with a payment due to both entities. This way no out of pocket funds are needed and they may just come out a few dollars to the good. Under the guide lines of the revenue procedure 2009-20, the amendment will be reviewed but electing the safe harbor method the return/amendment will not be challenged by the IRS.

Here's is what I now know, Ponzi-schemes are a mess and terrible to be a victim of. At least the IRS has recognized that taxpayers should be able to obtain some relief from these schemes and have provided a means for individuals and businesses alike to do so.

[kcjenkins]

Happy that it came out well,  Terry.  That makes it just a tiny bit better for them.  It's really horrible when the outcome is that the IRS in effect 'piles on' with more taxes due.  I just finished helping one of my sons with his return.  Guess this old lady still has some value, he was going to do his own this year, for the first time ever.  called me to review it, because he owed so much.  So I logged in to it with his password, and got to work.  He had done a pretty fair job, but I still reduced his final amount owed by 4K.   So I'm feeling pretty good about that.  

[Terry D EA]

Well I don't know about the "Old Lady" thing because I have never met you personally and no I'm not saying you are an "Old lady". Regardless, you do still have a lot of value and your knowledge of the tax laws and experience is immeasurable. Over the years, I have appreciated your input and advice immensely.

Also with these amendments, after all is done, these folks will end up with an extra $1100.00 they had no idea they could get. They have brought me three other clients with the same situation. While doing amendments at this time of year isn't something I would normally do, I will  at least get the 2012 taken care of for each of them due to the expiration date of April 15. Each situation is different and maybe I'll get lucky and find out that an extension has been filed.

[kcjenkins]

I'll be 72 in just a few days, Terry.  

[Terry D EA]

Well, 72 is not old and I am nearly right behind you at turning 61 this summer. Remember when we were kids, someone who was our age we considered them as ancient. How things change!

[WITAXLADY]

I'm 62 and forgot to go sign up in Jan - guess I'll get more figure I'll go 8 more years but need a partner soon and another remote person to survive - someone that is good at taxes! Retirees - or soon - calling you all!! 

 

And I am trying to get about 20 + 2012's completed - they keep crawling out of the files... 

D

[joanmcq]

I charge extra if I have to open 2012.  May this be the last of them!  God the program sucked that year.