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

January 3, 2011

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!


J. V. Huffman, Jr. Sentenced to 30 years – but I Want My Money!

January 31, 2010

Recently sentenced to more than 30 years in prison, J.V. Huffman Jr., 46, was a Conover, North Carolina, man who defrauded hundreds of people out of their hard-earned money for nearly 20 years.

THE SENTENCING HEARING:

Huffman addressed the judge saying, “I can tell you it was never an intent to rip off the world.”  Huffman said his own financial problems prompted the Ponzi scheme that stole from friends, neighbors and fellow church members.  “I certainly want to say that I’m sorry,” Huffman said.

The judge said he isn’t frequently at a loss for words, but in this case he was.

“These are good, honest, hard-working people who worked their entire lives,” Bell said to Huffman. “You had every opportunity. You didn’t have to work in a mill for 40 years, and there aren’t one, two or 10 (victims), there are hundreds.”

Bell said it is also not just one generation that’s affected, but up to three that could feel the effects of what Huffman’s done. After sentencing Huffman to 30 years, Bell gave him some advice for his time in prison.

“I hope that every day of those 30 years, you think of those people who had their money taken from them,” Bell said.

NOW WHAT?

Victims of Ponzi schemes generally don’t want to hear what’s coming next, but here goes.  Look back and ask yourself, what did you do to find yourself in this mess?  For a Ponzi schemer to defraud you – you had to fall into what I call the PIT.  First, “P” – you fell for the promise.  Likely, think back about it and be honest, you were PROMISED something that seemed really good – perhaps too good to be true.  You were promised a better return than anyone you knew was getting for their investments.

From 8+% to 16% – Huffman followed a tried and true method to defraud – he made a great promise.  He followed human nature – making you think that you were somehow special and that he could get you a better return than most of your friends were getting.  He hooked you right then and there.  And, if there is a lesson from this tragedy it would be DON’T FALL FOR THAT!

Now fairly, once Huffman had you hooked he solidified his position with you by creating the “I” – ILLUSION through fake statements making you feel that what you had was somehow real…and he showed you evidence of his success.  After all, in order for you to feel successful – he must be successful.  Now, I know that many of Huffman’s victims might say, “I never met the man.”  True, but you likely knew someone who did and he created the perfect reputation so that he could continue his scheme.

Lastly, he used “T” – TRUST as his foundation for attracting more victims.  Huffman did exactly the same thing that Bernie Madoff did – just on a smaller scale.  And who did he go after – friends, church members, folks who knew and trusted him.  And not knowing the victims, my guess is – many of you suggested Huffman to your friends – after all, you were getting such great returns.  Victims creating or paving the way for more victims.  And, many of you would now say that this has created painful riffs in your relationships with others.

Simple advice:  (1) If you think you’re getting a better deal than others get – your likely being scammed.  (2) Don’t do investment business with those you know and trust – they are the most likely folks to scam you.

WHAT CAN I DO TO GET MY MONEY BACK?

Perhaps nothing.  But, there are provisions in the federal tax code that might offer some relief.  And, while I hear that you’d want it all back…believe me, something is better than nothing.  For sure, Huffman can’t earn enough in prison to provide any restitution.

A post in my blog that discusses how you can gain some relief can be found here.  NOW LET ME BE CLEAR…it is easy to be defrauded twice by folks who prey on those who have been victims of schemes just like Huffmans.  BE CAREFUL.  That said, I wrote the following and stand behind the author of the blog referenced above:

Moira Souza Shiver, expert on the application of IRC Section 165, has been asked by me to write this guest blog.  The benefits of Section 165 can be substantial, yet there are few who are qualified to understand how to effectively navigate the regulatory maze to gain maximum benefit.  As a business ethics and fraud prevention speaker, I try, through this blog, to provide a useful forum for discussing issues, and there is none more important at this time than the effective use of legal methods to recover loss.

If you’ve been scammed by Huffman and, perhaps, attended the sentencing hearing…I’d welcome your comments.

Finally, regarding financial help…check out Moira and research folks who provide Section 165 help…but be careful, and don’t fall prey to someone who promises more than is reasonable.

YOUR COMMENTS WELCOME!


Bernie Madoff or Gordon Grigg Fraud Losses – Perhaps IRC Section 165(c)(2) Will Help…

February 16, 2009

There is nothing fun about fraud – especially if you are on the losing end.  Not only do you feel betrayed – your trust destroyed, but most of the time you find that you have also suffered financial loss that in many ways can’t be replaced.  irslogo

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.

I have talked with several of the victims of Gordon Grigg (who the SEC is actively conducting an investigation on) and I know and feel their pain.  So please read the following as it might help you understand the application of IRC Section 165(c)(2).

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.

While I no long provide tax advice, I do feel that providing information on fraud recovery options is a positive benefit.  Below are some links to articles on Section 165.  I do advise that that you give Moira a call.  Please note the following from her web site:

First and foremost, there is no guarantee you will ever recover any of your lost investment.  MSS165 will never be able to make you whole or guarantee a partial recovery of your money.  We can however promise to be truthful, try to help in any way we can and be available for questions as the needs arise.  With a combination of over 31 years experience in the investment fraud recovery industry, we’re confident that our ability, combined with our passion for helping victims will provide you with the best chance of recovery available.

*  MSS165 is compensated for its efforts by means of speaking engagements and donations to the company.  There is no charge to victims or their accounting professionals for our time, information or efforts on victim’s behalves.

HOPE THIS HELPS and as always – COMMENTS ARE WELCOME!

LINKS:

http://www.mss165.com/whoweare.htm

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

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

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