Investment Fraud And Taxes

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Investment fraud happens when people are manipulated or deceived while investing—to the point where any number of monies or property may be stolen by scams or brokers. Since the 1990s, there has been a large increase in the amount of trading in the United States securities and commodities markets. This trend has brought about an increase in fraud by investors, shareholders, executives and all other participants in the market.

Unfortunately, most investors will never receive a full repayment for their losses. Hiring lawyers to go after con-artists or delinquent brokers usually does not always yield justice, and while it is always a good idea to have legal representation when dealing with an issue as complex as investment fraud, it may result in more money down the drain. There is some good news, however: Some losses caused by investment fraud or theft is tax deductible. Such deductions are called theft loss tax deduction or embezzlement loss tax deduction. Theft loss tax deduction can be utilized after an investor is the victim of misconduct by their broker, or when someone is the victim of any scam. Some popular scams today include, but certainly are not limited to, telemarketing fraud, email scams, boiler room stock scams, high-yield investment offshore bank frauds, offshore tax shelter schemes, foreign currency operations, and insurance investment fraud.

Theft loss tax deduction can also help recover any loss caused by broker negligence, stock scams, identity theft, real estate schemes, criminal appropriation, internet fraud, and embezzlement of funds by a lawyer, financial adviser or bookkeeper.

Investment and other theft losses are covered in the IRS section 165 of the tax code. If you wish to claim a deduction for any losses due to investment fraud, you must complete a theft loss report. Theft loss reports should be submitted using Form 4684 and Form 1040 Schedule A.

Section 165 of the federal tax code covers investment fraud. Most of the time, it provides for a loss that arises from a theft that has been sustained during the taxable year during which the taxpayer has discovered the loss. A portion of the loss that has been discovered may be reimbursed if there exists a claim for the reimbursement with respect to which the taxpayer has a reasonable possibility of recovery, and is not treated as sustained until the tax year in which it may be made sure, with certainty, that the reimbursement will not be received.

When filing a theft loss report, you must calculate the total amount of loss you wish to claim. For stolen property, you must reduce the loss by $100 per loss event. You must also reduce your loss by ten percent of your adjusted gross income. In figuring your total loss, you must not consider future loss in profits due to the theft. Theft losses are usually only deductible in the year in which the theft occurred.

An example of victims who may be eligible for Section 165 reimbursements in recent news are the many people duped by a highly publicized Ponzi scheme created by a former stock market chairman. A Ponzi scheme occurs when people invest money and are paid off with returns from their own money or from money that has been paid by subsequent investors, rather than any real profit that has been earned. Schemes like this offer high-payout, speedy returns that other investments cannot, but is designed to collapse over time. This recent Ponzi scheme bilked people out of $50 billion, the most aggressive and staggering scheme to date.

There are many technicalities one must meet in order to qualify for deduction under section 165. There are many theft tax deduction specialists to consult with for more information and help with filing a theft loss report.

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