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Investors in Ponzi Schemes that profit from those schemes are often called upon to return those profits after the Ponzi Scheme has collapsed, leaving certain investors who (1) have profited from the Ponzi Scheme;  and (2) those who have lost money in the Ponzi Scheme.  

A trustee in bankruptcy is typically appointed, and the trustee can force the return of profits made by investors from the Ponzi Scheme.  These are “known as a Clawback”.  Profitable investors may also be called upon to return both their “profits and or their principal investments” that were returned to them.       

There is a unique section of the Internal Revenue Code that permits investors who are forced to make a pay back of profits, to be able to go back in time (even after the Statute of Limitations has run) and obtain refunds from closed years that may be much more valuable than a simple theft loss deduction.  Often refunds from the past are more than likely to have been taxed in much higher tax brackets.  These refunds of past profits often provide much higher returns than a simple current deduction.

Learning Objectives

  • Explore the tax code section that allows taxpayers to recover tax refunds from taxable years that are normally not available under typical circumstances.
  • Identify the requirements of taking advantage of a little known tax code section.
  • Discover the procedures that investors who made money in fraudulent investment schemes must face years after the investment has crashed.
  • Recognize that there are alternative methods of recovery of taxes paid from a Clawback.
Last updated/reviewed: November 19, 2019

1 Review (4 ratings)Reviews

4
Anonymous Author
Interesting topic and glad to learn about something that I would not have otherwise known.

Prerequisites

Course Complexity: Intermediate

No advanced preparation or prerequisites are required for this course.

Education Provider Information

Company:
Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact:
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Course Syllabus
INTRODUCTION AND OVERVIEW
  9:58Introduction to Ponzi Scheme Theft Losses and The Repayment of Profits by Those Who Prospered (THE “CLAWBACK”)
  7:34Mitigation Section
  6:52Mitigation Section Continued
  2:47The Claim of Wrong Exception to the Claim of Right Principal
  8:15Entitlement to Deduction in Year of Payment
  8:56Summary: The Clawback of Profits
CONCLUSION
  5:227 Conclusion
CONTINUOUS PLAY
  49:45Ponzi Scheme Theft Losses and The Repayment of Profits by Those Who Prospered (THE “CLAWBACK”)
SUPPORTING MATERIALS
  PDFSlides: Ponzi Scheme Theft Losses and The Repayment of Profits by Those Who Prospered (THE “CLAWBACK”)
  PDFPonzi Scheme Theft Losses and The Repayment of Profits by Those Who Prospered (THE “CLAWBACK”) Glossary/Index
  PDFSupporting Document
REVIEW AND TEST
  quizReview Quiz
 examFinal Exam