How can I recover money from investment fraud?

If you lost money in some sort of a fraudulent investment or scheme, it is highly unlikely that you will be able to recover any of the money, but there is one source from which you may be able to get some of your money back – the federal government. This is not a handout to people that were taken in a scheme, but it is a provision in the tax code which will allow you to get your tax money back in the event that your investment turned out to be fraudulent.

The law pertaining to this is found in the Code of Federal Regulations title 26, subtitle A, chapter 1, subchapter B, part VI, section 165. If your money has been taken through fraud, if falls under the category of theft, and the loss can be taken in the year in which you discover the theft. There are several companies around the country that specialize in recovering fraudulent investments. Many offer a free consultation or will only charge a fee if you actually recover some of the fraudulent investment.

When you have discovered the fraud, you will want to contact your tax advisor on how to strategically carry-back and/or carry-forward losses that you have incurred from the fraud. When done correctly, you can recover a substantial amount of your investment through a tax refund.

If you did receive money back as a return on your investment, it was probably considered income on you taxes. In actuality, this money is a "Capital Return." Rather than income, it can be considered money from your investment that was returned to you. As a result, you could amend the previous year's taxes and get a better refund. In some circumstances, profits from these investments are considered “Phantom Income” which can be recovered like theft losses above.

Two common mistakes that people make when trying to recover investment fraud losses are that they don't deduct the losses in the proper year or they convert theft losses into capital losses of a lesser value. Advance planning and good advice can get you back a larger portion of your investment.

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