Miscellaneous

The IRS has expanded the number of Identity Protection Personal Identification Numbers (IP PINs) being issued to Identity Theft victims. The IP PIN is a unique identifier (6 numbers) that shows that a particular taxpayer is the rightful filer of the return.
In 2015, the IRS has issued IP PINs to more than 600,000 taxpayers who have been victimized by identity theft. That’s more than twice as many as the previous year.
The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds.

Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes.
Usually, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season.
You may be unaware that this has happened until you file your return later in the filing season and discover that two returns have been filed using the same SSN.

Revenue Ruling 2009-9 provides guidance on determining the amount and timing of losses from these schemes, which is difficult and dependent on the prospect of recovering the lost money (which may not become known for several years).
Go to IRS Website to access Ruling. http://www.irs.gov/uac/Help-for-Victims-of-Ponzi-Investment-Schemes

Whether a taxpayer who recovers amounts lost in a fraudulent investment scheme is required to include the recovery in income depends on whether the taxpayer claimed a tax deduction for the theft loss in any prior year.
A taxpayer who has not yet claimed a tax deduction for the theft loss is not required to include in income a recovery from the trustee or receiver. Instead, the recovery will reduce the amount a taxpayer may eventually claim as a loss.
A taxpayer who claimed a tax deduction for the theft loss, however, may be required to include the recovery in income, depending on the extent to which the theft loss deduction created a “tax benefit” for the taxpayer.

If you receive a notice from IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.
If you did not receive a notice but believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 right away so we can take steps to secure your tax account and match your SSN or ITIN.
Also, fill out the IRS Identity Theft Affidavit, Form 14039. Please write legibly and follow the directions on the back of the form that relate to your specific circumstances.

The scheme is named after Charles Ponzi who became notorious for using the technique in 1920.
In March 2009, Bernard Madoff pleaded guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars.
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, instead of from profit earned by the individual or organization that is running the operation.
The scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going

If the taxpayer using the optional safe harbor provided in Rev. Proc. 2009-20 claimed a deductible theft loss in 2009 equal to 95% of the total qualified investment, reduced by amounts the taxpayer reasonably expects to recover from insurance or from the Securities Investor Protection Corporation (potential insurance/SIPC recovery, then the taxpayer does not have income in the current year under the tax benefit rule.
As the taxpayer properly reduced the deductible theft loss by the potential insurance/SIPC recovery in the year of loss, when those amounts are recovered in the current year the taxpayer does not have to report the recovery as income under the tax benefit rule.

If a taxpayer properly claimed a theft loss deduction and in a later year recovers a portion of the amounts lost, the taxpayer may Not amend the prior year’s income tax return to reduce the theft loss deduction by the amount of the recovery. Instead, the recovery is includible as tax benefit income in the year received.

Under a provision of law known as the tax benefit rule, a taxpayer must include in income the recovery of any amount deducted in a prior taxable year to the extent the prior year’s deduction reduced the taxpayer’s tax liability for that year (or created a net operating loss carryback or carryover