Dan Frishber’s BizRadio: Tax Relief for Scammed Investors – Maybe? Section 165

So…I’m not a tax adviser!  I used to be, but frankly screwed that up many years ago based on the unethical choices I made.  My choices cost me my license, my career and earned me a coveted (just kidding) spot in the federal pen!  How’s that for a disclaimer?

That now said, I know many of you who have followed my work on the Dan Frishberg – BizRadio scam have lost substantial sums of money with little hope of any significant recovery.  So, as the pages of the year 2010 turn into a new year – 2011 – the question is – what kind of tax relief can you expect to receive considering your losses at the hand of Dan “The Money Man”?

Last year this time I was reporting on the same thing, but this time it was for those who had losses from other Ponzi schemer’s like Bernie Madoff and Gordon Grigg.  So let me dredge through some past information and see if this might be of help to the Frishberg’s victims.

As a busines ethics and fraud prevention speaker, I believe in giving credit where credit is due.  Today I received a response to two blog postings I made by Moira Souza Shiver who reminded me about a provision of the Internal Revenue Code that, in many ways, is little known.  Her website can be found here and it states the following:

My name is Moira Souza-Shiver and I am the founder and President of MSS Advocacy Group, LLC (MSSAG).  I’m extremely proud to have established an organization whose main mission is bringing help to victims by attaining the assistance they deserve and were promised.  Working in the investment fraud industry for the past 10 years has created in me a passion to fight for what’s right and even more, has instilled in me a deep respect for victims and the suffering they endure.

My decision to establish MSSAG came from what I describe as a desperate need within the 165 industry.  After serving 6 years with JK Harris 165 Services, LLC, it was clear there was little being done in the form of victims’ advocacy and an organization was needed to help alleviate their suffering.   Believing that investment fraud victims deserve the same rights allotted to other victims, MSSAG was born.

MSSAG is committed to doing everything it can for this cause, including aligning itself with other organizations and advocates that can provide complimentary assistance through established programs.  By combining forces with these types of organizations, we intend to maximize all available sources of assistance and bring hope back to victim’s lives.

Now, before you assume that I have a financial interest in promoting Moira or Section 165, let me clarify that I do not.  But like Moira, I do have an interest in making sure that all aspects of ethics and fraud (including prevention and recovery) are explored.

An excellent article was written in the Journal of Accountancy related to Section 165.  A portion of the article is reproduced below:

When a client is the victim of fraud or embezzlement, for example, CPAs can reduce the client’s ordinary income, recoup any previously paid taxes and minimize future tax obligations by using IRC section 165(c)(2).

Be aware that CPAs who prepare and defend an investment loss deduction under IRC section 165(c)(2) must meet numerous technical requirements and make certain determinations based on examining the circumstances. Section 165(c)(2) deductions also frequently prompt IRS oversight, and in many instances, the standard tax preparation software does not adequately address this deduction, since it’s generally geared to the more familiar section 1211 capital loss treatment. But while section 1211 is an appropriate treatment, using it may result in clients’ paying more taxes than are required.

If a client suffers an investment loss as a result of a fraudulent investment or unethical sales practice, probably the most prudent action a CPA can take, even though there is no requirement to do so, is to suggest the client first discuss it with his or her lawyer. Taxpayers are required to take reasonable action to recover a loss and not doing so disqualifies it for section 165(c)(2) treatment. If the lawyer feels there was malfeasance and it is not practical to pursue recovery due to a lack of recoverable assets, the cost of litigation or other reasons, the loss probably is deductible in the current period. Losses from embezzlement, blackmail, kidnapping for ransom, burglary, larceny, extortion and threats also may qualify for section 165 treatment.

A WORD OF CAUTION:

If you’re considering taking advantage of this section of the Internal Revenue Code – FIND A COMPETENT ADVISER.  Not every CPA or tax specialist is competent to assist you with this complicated section of the Internal Revenue Code.  I strong suggest that you find someone who will provide references and that you verify the results those references received.  DON’T BE SCAMMED TWICE!

Here are some other links that were provided to me that might be of help as well.

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/04/AR2009040404341.html

http://www.journalofaccountancy.com/Issues/2005/Apr/MaximizeTaxBenefitsUnderIrcSection165.htm

http://www.traderstatus.com/section165theftloss.htm

http://www.taxreliefinc.com/165services2.htm

https://chuckgallagher.wordpress.com/2009/03/02/madoff-grigg-dryer-investment-fraud-victims-tax-relief-through-irc-section-165-c2/

http://www.crimes-of-persuasion.com/Victims/theft_loss_deduction.htm

Thanks to Vince Rowe for reminding me of the tax provisions that might help the Frishberg victims.  By the way, if any of you have a recommendation of someone who is competent to provide tax help in this matter in the Dallas or Houston area…feel free to respond to this blog and I’ll be delighted to share.

YOUR COMMENTS ARE WELCOME!

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4 Responses to Dan Frishber’s BizRadio: Tax Relief for Scammed Investors – Maybe? Section 165

  1. Steve Mead says:

    Hello Chuck,

    I believe Moira (MSSAG) left the industry for other pursuits and the web-link no longer works.

    We specialize in Section 165 Theft Deduction Representation and welcome any calls.

    The link will take you to a brief audio presentation regarding a theft loss deduction.

    http://www.investmenttheftlossexperts.com/

    Sincerely

    Steve

  2. JAMMAS says:

    Thank you for posting. I am sure we will need it since we are one of their ripped off investors.

  3. RippedOff says:

    Looks like Kaleta is back in financial business, see this web site

    http://kaleta.retirerx.com/about-us.html

  4. Chuck:

    I am familiar with S.165 losses and have filed for refunds using the section succesfully in the past. Several years ago, there were scams primarily in Georgia and South Carolina where promoters lured seniors into buying interests in payphones. This happened during the rise of cell phones, so of course there were losses. However, these losses were due to the promoters using the funds to directly line their pockets.

    I am in Houston, and while I was not burned by Dan’s investments, I did have another “burn” encounter with Dan and Al.

    I am an Enrolled Agent with over 20 years experience. I will be happy to help anyone who needs such help in recovering the losses as allowed by law.

    Thanks,
    Randall Klein, EA

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