Chowdahead

>>Anyone know if he can claim some/all of this as a capital gains loss.. or perhaps a "casualty" loss?<<

I put pyramid scheme into a search engine and got several dozen hits, mostly court cases. It's obvious the government is not too keen on the activity. No matter what the taxpayer's position, the rulings were always against it. If they made money, it was ordinary income not capital gain (with accuracy penalty). If they lost money, it wasn't a business deduction or theft (with accuracy penalty). One guy invested $145,000 and only got back $60,000--they said he couldn't deduct any theft, but had to pay tax on the $60,000 (with accuracy penalty). The luckiest taxpayer of the bunch WAS allowed to deduct his losses--as wagers not to exceed his gambling income! (Oh, yeah, with accuracy penalty.)

So anyway there is some material to research. Hopefully your client has excellent records. I don't know how you define it as a theft if he willingly gave the money to his friend instead of the guys being charged. He knew or should have known it was an illegal plan (the IRS calls it tax evasion), the courts have repeatedly cited various technical theories to hold it is not a capital investment, and it was certainly not a bona fide business. Just a personal fling; maybe gambling is the best comparison after all.

He showed me 4 cancelled checks to "Wealth Pools International". They totalled just over $63,000. I did a search on the company, and apparently they swindled over $143 million from people in 2007 alone. He thought it was a legitimate "DVD Learning" product that he was investing in. He didn't give the checks to his friend, he wrote them directly to the company.

Is it really "fair" that he can get taxed on any earnings from this sort of "investment" yet can't claim any losses? He also has a 1099-R of over $58,000 issued to him for his early withdrawal of the reitement funds.

My guess is that the rules for casualty loss might still be gray enough to be worth chancing it, but he's probably guaranteed to be audited.

Question: Did your client know he was participating in an illegal pyramid scheme?

No, according to the information he gave me. The way he decribed it was that a friend of his was invested already and convinced him to invest. So he pulled the money out of his retirement account, thinking his earnings from the investment would cover the penalties and extra taxes. He is going to see lots of penalties and taxes on that early withdrawal. It's staggering....

I've got a client who lost over $60,000 in a pyramid marketing scheme called Wealth Pools International. The owners of the company were charged with fraud by the SEC in December 2007.

He has not seen a penny of the money back. Anyone know if he can claim some/all of this as a capital gains loss.. or perhaps a "casualty" loss? I've done tons of searching and reading on this and can't seem to find anything...

It's 9:06PM and I can't get through!!!

From the ATX Website:

High volume April 14-15 is generating "server errors"

04/14/2008

We are experiencing very high efile volume today, 14th, and expect that to continue tomorrow too of course. We are seeing more "server errors" today than usual, and there is no action needed. Simply keep trying to send your efiles. This high efile volume translates into higher call volume to the CS Dept and our wait times are much longer than usual. We have added staff, increased hours, shortened lunches, and extended our closing time to 11pm tonight.

I'm not having any luck either. I've tried to send two e-files on two different attempts and I also get a server error. The explanation that this is a high-volume day is unacceptable. The've had an infinite amount of time to get extra server capacity, if this is an CCH flaw. If this is an IRS flaw, than I can't blame CCH. But I doubt it's IRS because the drain occurs twice a day to the IRS.

Are Drakes users having the same issues?

I've got half dozen clients who owe tax and are filing now. They would like their economic stimulus payment direct deposited when it arrives in May or June. However, ATX claims they do not support direct deposit info being entered onto the E-file Info form if there is a tax due. The client will have to paper file the return and I would have to write the routing number and account number on the paper return.

Is this just because ATX doesn't want to bother patching the program or is it per IRS rules? To me this doesn't make sense, especially if we can now e-file returns with zero refund or liability for stimulus payments, and enter direct deposit info on those....

Yes, Rhode Island will take a while since their system is still quite antiquated. If you haven't seen an accepted status as of today, call the Division of Taxation at (401) 222-1040.