In an attempt to ease some of the financial pain of ponzi scheme victims, Congress, through the IRS, has now allowed a casualty loss for those individuals on their personal tax returns.
On a 2013 draft of Form 4684, Casualties and Thefts, and its accompanying instructions, IRS provides for a way to recover some of the loss. Page 3 of the draft has a new Section C, Theft Loss Deduction for Ponzi-Type Investment Scheme Using the Procedures in Revenue Procedure 2009-20.
An optional safe harbor treatment is contained in this revenue procedure for taxpayers who experienced losses in certain investment arrangements discovered to be criminally fraudulent. If the safe harbor treatment is not elected, it also describes how the IRS will treat a deduction for such a loss.