FTX Sam Bankman-Fried Ponzi Scheme

It is important to understand that the clawback falls under the Internal Revenue Code section that deals with financial losses. The importance of this is because the Trump new tax bill left the ability to take deductions and to use the mitigation section in Ponzi schemes because Ponzi schemes were transactions entered into for profits. The Trump tax bill went a long way to eliminate the deductions from thefts that were not thefts that were a result of you trying to make money in an investment scheme or in a business. There is no loss carry backs or deductions from Ponzi schemes or a deduction from a clawback. Under the new Trump Tax bill however if you claim the mitigation section that's when you can go back and use your carry backs and carry forwards. This unique section in the Internal Revenue Code. It's a little bit complicated. And that's because they did not want people who were really not entitled to go back and reopen the statue of limitations. They just didn't w...

 The Clawback The clawback is a companion to the ponzi scheme deal. It is well thought out and brings more fairness to those who have lost money. To the extent there are individuals who have made money from the scheme those profits are to be returned to the appointment trustee for distribution to the losing party. When this clawback occurs, generally the income clawed back from the taxpayer will be deductible by the taxpayer in the year it is paid. However, often the deduction in the year the clawback is paid may occur at a much lower tax bracket than the tax bracket that was applicable to the income when it was included in income. To provide for tax equity under specific circumstances, the Internal Revenue Code permits a taxpayer who includes an item in gross income in one tax year and pays tax on that item, and who is compelled to return the item in a subsequent year, to calculate the deduction on the amount that is returned in a unique way. This is known as the ‘‘mitigation’’ se...

Report to Congress: Customer Outcomes in the Madoff Liquidation Proceeding The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that works for Congress. Often called the “congressional watchdog,” GAO investigates how the federal government spends taxpayer dollars. Friday, October 5, 2012 Subject: GAO Madoff report Dear Mr. Lehman, I know it’s been a while since we spoke, but I wanted to follow up with you and send a  copy of our recent report . I’d like to thank you again for the help you gave us. In this case, your assistance helped produce instant results – as a direct result of the conversations we had with private sector tax professionals, the IRS issued new guidance on treatment of clawbacks. We were prepared to recommend the agency do so, but when they saw what we were going to report, they immediately issued the guidance on their own. It doesn’t often happen that change comes so quickly, and this wouldn’t have been possible if you didn’t lend...

The Revenue Ruling 2009-9 and IRS Safe Harbor (Revenue Procedure 2009-20) In 2009, two important documents were issued by the IRS regarding the taxation of Ponzi schemes. In Rev. Rul. 2009-9 , the IRS clarified much of the previously unsettled law in this area. The Rev. Proc. 2009-20 applies to losses for which the discovery year is a taxable year beginning after December 31, 2007; it offers thousands of Ponzi scheme victims a badly needed uncomplicated shortcut to cash refunds from tax losses. These two IRS documents form a good package and were drafted in record time, for any government agency. However, it is important to remember that the IRS is not in business to give back money. The “safe harbor” needs to be studied carefully, because it could be extremely expensive form a tax standpoint. It might be a safe harbor, but the tax cost to dock your boat in this harbor could be very high. To provide a very simplistic example, assume that there are $30 billion of Ponzi scheme losses th...