CLAIM FOR REFUND-PONZI SCHEMES
PURPOSE OF BULLETIN
To inform staff we are following IRS Revenue Ruling 2009-9 and Revenue Procedure 2009-20 on how to file a claim for refund regarding Ponzi schemes.
IRS has issued guidance addressing the tax treatment of losses from criminally fraudulent investment arrangements in the form of a "Ponzi" scheme. The guidance provides that investors in such schemes will be entitled to claim a theft loss under IRC �165, rather than a capital loss. The perpetrators of such fraudulent schemes actually deprive investors of money by criminal acts.
WHAT IS A PONZI SCHEME?
A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned.
Federal and California laws are the same with respect to theft losses. California law is in substantial conformity with the Internal Revenue Code, Federal regulations, rulings, and procedures. We will follow IRS Revenue Ruling 2009-09 and Revenue Procedure 2009-20 to the extent Federal and California laws are the same.
SAFE HARBOR METHOD
Using Safe Harbor Method
We will accept federal "Appendix A - Statement by Taxpayer Using the Procedures in Rev. Proc. 2009-20 to determine a Theft Loss Deduction Related to a Fraudulent Investment Arrangement," for those taxpayers choosing to use the optional safe harbor method for California.
Not Using the Safe Harbor Method
Taxpayers not using the safe harbor method for California may file a claim for refund for prior years with an open statute. The statute of limitations for filing a claim for refund is the later of, four years from the original due date of the return (not including extensions), four years from the date the return was filed (if filed by the extended due date), or one year from the date of overpayment. We will hold an amended return as "protective claims for refund," until the law related to the treatment of Ponzi schemes is clarified.
NET OPERATING LOSSES (NOL)
For California purposes, any reference to federal net operating loss carryforwards, or carrybacks does not apply. California law does not allow carrybacks of net operating losses for tax years 2010 and prior. NOL carryforwards for most taxpayers are suspended for 2008 and 2009 tax years.
HOW TO FILE AMENDED RETURNS
Taxpayers who have not filed a claim for refund and the statute of limitations remains open, should write, "protective claim - Ponzi scheme" in red at the top of the first page. Also, include the statement "This is a claim for refund for (taxpayers name) - Ponzi scheme and name of investment or promoter" attached to the amended return or in the Explanation of Changes part of the return.