Accounting
Recession may reveal new wave of Ponzi schemes
Get ready to spot some frauds.
“Ponzi schemes don’t collapse when the markets are booming. They collapse when the music stops,” warned Jeffrey Schneider, managing partner at law firm Levins Kellogg Lehman Schneider + Grossman, describing how financial frauds typically unravel during recessions and why we should be on high alert.
With recession odds jumping from 23% in January to 36% in March, according to CNBC’s Fed Survey, and J.P. Morgan putting the risk at 40% (likely higher after the latest round of tariff announcements), the economic pressure is mounting — and so is the potential for Ponzi schemes to implode.
Jin Lee/Bloomberg
During recessions, the influx of new investors dries up, while demand for withdrawals rise. “It’s a perfect storm that often reveals the unsustainable foundation of a Ponzi scheme,” according to Schneider. “As we’ve seen time and again — from 2008’s Great Recession to COVID-era fraud — downturns don’t just hurt the market, they expose what’s been lurking beneath it.”
Schneider is a trial attorney who has recovered more than $400 million for defrauded investors, including well-known frauds such as Jay Peak and Mutual Benefits.
“When the economy is strong and investor optimism is high, Ponzi schemes can run for years undetected,” he said. “But when markets turn and recession fears grow, that’s when the house of cards begins to crumble. The influx of new investors dries up, and pressure mounts from existing investors trying to withdraw their money. That combination is deadly for fraudsters, and it’s often how their schemes are finally exposed.”
Ponzi schemes remain a serious issue in the U.S., even after the high-profile collapses of Bernie Madoff, Allen Stanford and Scott Rothstein, Schneider observed.
“In 2023 alone, 66 Ponzi schemes were uncovered, which collectively involved nearly $2 billion of potential losses, according to Ponzitracker,” he explained. “And those are just the ones that have been caught. Many more fly under the radar until, in many cases, economic conditions bring them to light.”
Investors should remain vigilant and be on the lookout for common red flags that may signal a Ponzai scheme, Schneider emphasized. These include consistently high returns that appear unaffected by market conditions. If an investment opportunity seems too good to be true, it probably is, he advised.
“A lack of transparency is another warning sign,” he continued. “If you can’t clearly understand how the investment works or where the returns are coming from, proceed with caution. Difficulty withdrawing funds or pressure to continually reinvest should also raise alarms, as legitimate investments typically allow for straightforward access to your money. It is also important to verify that both the investment products and the individuals offering them are properly registered with the Securities and Exchange Commission or FINRA. Unregistered entities are a major red flag.”
“I’ve seen firsthand how devastating these schemes can be and how important it is to hold bad actors accountable,” Schneider said. “But the best defense is always prevention. In uncertain economic times like these, heightened vigilance is critical.”
Getting your own back
“Ponzi schemes are so prevalent that they have their own set of guidelines,” said Miami CPA Carrie Baron of Carrie Baron & Associates.
For tax years 2018 through 2025, individuals can only deduct casualty or theft losses of personal-use property not connected with a trade or business or a transaction entered into for profit if the loss is attributable to a federally declared disaster.
“But theft losses incurred in a transaction entered into for profit may still be deductible,” she noted. “The amount of the theft loss includes not only the investor’s [unrecovered investment], but also the amounts reported as income from the investment in prior years that were reinvested in the fraudulent investment arrangements, according to the IRS.”
“The defrauded investor can take an ordinary loss of 95% of the loss if they are not seeking recovery,” noted Baron. “The IRS says if you use the safe harbor they won’t challenge the Ponzi deduction.”
The safe harbor under the revenue procedure generally permits taxpayers to deduct in the year of discovery 95% of their net investment less the amount of any actual recovery in the year of discovery and the amount of any recovery expected from private or other insurance, such as that provided by the Securities Investor Protection Corporation.
Bloomberg via Getty Images
Amid the agency’s turmoil this year, the Internal Revenue Service has some good news from 2024 regarding service and collections.
The agency helped taxpayers on 62.2 million occasions in FY24, up 3.2% over the prior fiscal year, and took in a new high in revenue, according to its latest annual
IRS toll-free customer service lines provided live telephone assistance to almost 20 million callers during the fiscal year, up some 11% from 2023. At Taxpayer Assistance Centers, the agency helped more than 2 million taxpayers in person, an increase of almost 26% over FY2023.
For the first time, revenue collected exceeded $5 trillion ($5.1 trillion), an increase of almost 9% compared to the prior fiscal year total.
The Data Book gives a fiscal year overview of the agency’s operations, including returns received, revenue collected, taxpayer services provided, tax returns examined (audits), efforts to collect unpaid taxes and other details. Among other FY24 highlights, the IRS:
- Launched more digital tools than it had during the previous 20 years. Online offerings saw more than 2 billion electronic taxpayer assistance transactions, 47% more than in FY23. The most popular features were requests for transcripts and Where’s My Refund? Overall, IRS.gov registered nearly 690 million individual visits with 1.7 billion page views.
- Processed more than 266 million returns and other forms from individuals, businesses and tax-exempt organizations; received almost 4.6 billion information returns; and issued close to $553 billion in refunds.
- Closed 505,514 tax return audits, resulting in $29 billion in recommended additional tax.
The net collections — federal taxes that have been reported or assessed but not paid and returns that have not been filed — totaled almost $77.6 billion, an increase of 13.6% compared to FY23. The agency collected more than $16 billion through installment agreements, an increase of more than 12% compared to the prior fiscal year.
The Data Book also covers statistics on Direct File, taxpayer attitude surveys about satisfaction with the IRS and “acceptable” levels of cheating on taxes, and applications for tax-exempt status, among other topics.
Total postsecondary spring enrollment grew 3.2% year-over-year, according to a report.
The National Student Clearinghouse Research Center published the latest edition of its
The report found that undergraduate enrollment grew 3.5% and reached 15.3 million students, but remains below pre-pandemic levels (378,000 less students). Graduate enrollment also increased to 7.2%, higher than in 2020 (209,000 more students).
(Read more:
Community colleges saw the largest growth in enrollment (5.4%), and enrollment increased for all undergraduate credential types. Bachelor’s and associate programs grew 2.1% and 6.3%, respectively, but remain below pre-pandemic levels.
Most ethnoracial groups saw increases in enrollment this spring, with Black and multiracial undergraduate students seeing the largest growth (10.3% and 8.5%, respectively). The number of undergraduate students in their twenties also increased. Enrollment of students between the ages of 21 and 24 grew 3.2%, and enrollment for students between 25 and 29 grew 5.9%.
For the third consecutive year, high vocational public two-years had substantial growth in enrollment, increasing 11.7% from 2023 to 2024. Enrollment at these trade-focused institutions have increased nearly 20% since pre-pandemic levels.
Jordan Vonderhaar/Photographer: Jordan Vonderhaar/
The Internal Revenue Service has released
The Inflation Reduction Act of 2022 amended Sec. 55 to impose the CAMT based on the “adjusted financial statement income” of an “applicable corporation” for taxable years beginning in 2023.
Among other details, proposed regs provide that “applicable corporation” means any corporation (other than an S corp, a regulated investment company or a REIT) that meets either of two average annual AFSI tests depending on financial statement net operating losses for three taxable years and whether the corporation is a member of a foreign-parented multinational group.
Prior to the publication of any final regulations relating to the CAMT, the Treasury and the IRS will issue a notice of proposed rulemaking. Notice 2025-27 will be in IRB: 2025-26, dated June 23.
DLTR, WFC, CEG and more
IRS paints a strong picture from fiscal 2024 in annual Data Book
ADP jobs report May 2025:
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
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