New IRS Guidance for Ponzi Scheme Clawback Defendants

Posted by Kathy Bazoian Phelps

For investors who need help from the IRS on how to treat clawback payments made to trustees, the IRS has published a new webpage:

       www.irs.treas.gov/uac/FAQs-Related-to-Ponzi-Scenarios-for-Clawback-Treatment

So far the IRS has posted answers to two questions:

·         How does a taxpayer treat the repayment of a clawback?

·         What does the taxpayer need to establish as to whether the repayment of a clawback is allowable as a deduction (or a § 1341 credit)?

The IRS’ efforts to assist Ponzi scheme victims is commendable, and the information provided should prove to be helpful. Still, any investor who has experienced the misfortune of having to write a check to the trustee of a Ponzi scheme on a clawback claim is strongly advised to seek professional assistance in properly determining the tax consequences. The last thing a Ponzi scheme victim needs is trouble from the IRS!