How Can I Tax-Deduct Investment Scam Losses from Legisi and EBL Ponzi Schemes?

Are you or someone you know among the tens of thousands of people who lost money to the investment scams like Legisi or EBL aka Earn By Loaning? Even if you have filed a claim and you're still clinging to hope that the Legisi receivership will someday send you a hefty check, you can report your losses on your taxes for a small break. No, the IRS will not refund you the whole amount, but you will lower your taxes somewhat.

Here is how to tax-deduct your Legisi and/or EBL losses...

If you use TaxAct.com, or a similar efile program, click on the "Forms" tab, and select IRS Form 4684 Casualties and Thefts.

1. Use Section A of Form 4684, which is used to report casualties and thefts of property not used in a trade or business. The software should walk you through the following steps for your tax deduction.

2. Casualty and Theft - Description of Property A. E nter the description of the casualty or theft property showing the type, location, and date acquired. Description: "Fraud by Legisi Holdings LLC, USA, 9/22/2006"

3. I ndicate "the holding period of this property" as short-term (one year or less) or long-term (over one year), depending on how long your money was with Legisi and/or EBL.

4. E nter the cost or other basis of this property and the amount of any insurance or other reimbursement, even if you have not filed a claim. For the cost or other basis, enter the total amount you invested, deposited, loaned to Legisi or EBL. Enter the amount of the total reimbursement or withdrawal you received.

5. E nter the fair market value before and after the casualty or theft. The fair market value before the casualty or theft is an estimate of what your account was worth when Legisi or EBL shut down. The fair market value after the casualty or theft should be estimated at 0.00, assuming you're not going to get your money back.

If you file a paper tax return instead of using efile, then follow these steps, which another Legisi member used to get his losses tax-deducted. Use Section A of Form 4684, the same as in the example above. Then fill out the form as follows – or have you tax expert do it for you.

→ Producing Property Event: Investment Theft by Fraud

→ Property A line: Legisi Holdings LLC

→ Property B line: Quest Holdings Inc.

→ Part II: Casualty or Theft of Property Held More Than One Year

→ Line 40: Investment Theft by Fraud

→ Attach a statement like this one: Investment with the following companies, Legisi Holdings LLC managed by Greg McKnight, and Quest Holdings Inc managed by Craig T. Jolly. These parties have been arrested and charged with investment fraud. Investment monies not recovered.

What if you later receive money from EBL (Quest Holdings) or the Legisi receivership after you've tax-deducted your losses? Simple: I'd just report those funds as income at tax time, so the government gets its share.