new development in taxpayers who were scammed

[BrewOne]

taxnotes© has posted a couple of articles on a recently released IRS memo (ILM 202511015).  From the NAEA bulletin "The January 17 memo...determined that taxpayers who were cheated in their attempts to invest could take advantage of the theft loss provision for 'transactions entered into for profit'; and wouldn't be limited by the TCJA's restriction on personal casualty losses."

[Lee B]

Here a link to the actual article BrewOne refers to:

https://www.taxnotes.com/featured-news/tax-pros-welcome-clarity-scam-theft-loss/2025/03/14/7rnbr

[BulldogTom]

Well, I think I have a similar situation.  Of course they couldn't tell me in Jan or Feb, it has to be in April.   Thanks so much for posting this info.   May save my client some serious tax $.

Tom
Longview, TX

[BulldogTom]

I am looking at form 4684 and I just think this is not going to go through.

Looking for advice on how to present this in the return so that when a real set of eyes gets around to looking at it, there will be a chance they will be able to figure out what I am trying to tell them.   This form is just not giving me the options to do so.

Advice?

Tom
Longview, TX

[jklcpa]

Tom, I have not done one myself but took a look at the instructions. I think it goes in section B for losses from business and income producing properties. Then, take a look at instructions for line 19 where it says to include all of the details you have for it if claiming a loss from fraudulent investment schemes that are not Ponzi-type and are not filling out section C. 

See what you think of that after looking at those instructions. That's the best I could make of it. 

[Margaret CPA in OH]

Tom, I just finished and efiled one yesterday.  I went to 4684 Input.  For my client I selected Income producing (her entire retirement plus all her investments), Type was Cash, her address, the original date of retirement and date the theft began.  Long term and the original cost on lines 20, 23 (FMV) and 27a ($729,462).  It flowed though to Sch. A and to page 1 of 1040 as itemized deductions.   It shows on 4684 page 2 section b part I column A and flows to section !!.  It was efiled and accepted.  We shall see what next steps happen.

[TexTaxToo]

Note that this type of "theft" is not subject to the 10% of AGI+$100 reduction for casualty losses and should flow to line 16 of Schedule A (not line 15).

[BulldogTom]

15 hours ago, jklcpa said:

Tom, I have not done one myself but took a look at the instructions. I think it goes in section B for losses from business and income producing properties. Then, take a look at instructions for line 19 where it says to include all of the details you have for it if claiming a loss from fraudulent investment schemes that are not Ponzi-type and are not filling out section C. 

See what you think of that after looking at those instructions. That's the best I could make of it. 

Thanks @jklcpa   I guess my problem is that I can't find a place to give a detailed explanation that links to this form in ATX.   I can put in a blank statement but that does not have a link to a form number so it will go together.   The amount of space you get in Line 19 is very minimal (see below).  If no one has a better idea, I will put in a blank statement with a header that indicates the form number and line number with the details as provided by the client.   I just don't think it will end up in the efile so it will not get in front of the examiner when it gets kicked out for review.   

Tom
Longview, TX

[jklcpa]

Tom, does ATX allow attachment of a pdf?  I can scan and attach any statement I want. I just have to fill in three things: a basic explanation or form it relates to, a reference (such as the form, pub, code, reg, memorandum) and the name of the file with a .pdf extension.

[BulldogTom]

5 minutes ago, jklcpa said:

Tom, does ATX allow attachment of a pdf?  I can scan and attach any statement I want. I just have to fill in three things: a basic explanation or form it relates to, a reference (such as the form, pub, code, reg, memorandum) and the name of the file with a .pdf extension.

I think it does.  I used to know how when we needed to scan and attach Sch B of the 1116 a couple years ago.   I have not done it in a while. 

As I was eating dinner, I came up with a plan, I am going to reference the CCM in line 19 and SEE ATTACHMENT.   Then I am going to complete a blank statement and then attach as a pdf.   

I am not concerned about the legal challenge to the deduction, my client fits the #2 scenario in the CCM to a T.   I don't care if they audit, we are on firm ground.   But I don't want to invite an audit because the facts are not presented in the originally filed return.   And I don't know for sure how to make sure that the facts get into the IRS system.   That is what has my knickers in a bunch.

Tom
Longview, TX