Fortuitous Victims: Some Tax Law Consequences of Ponzi Schemes

46 Pages Posted: 21 Jan 2014

See all articles by Sas Tullo

Sas Tullo

York University, Osgoode Hall Law School

Jackson Taylor

York University - Osgoode Hall Law School

Date Written: August 28, 2013

Abstract

In this paper the authors examine the tax consequences of Ponzi schemes for innocent investor-victims. They use the decisions of the Tax Court of Canada and The Federal Court of Appeal in Johnson v. The Queen as a focus of discussion. Their discussion as to the taxability and deductibility of gains and losses for victims of Ponzi schemes draws on the source doctrine of Income, contract law principles, and the sham and ineffective transactions doctrines. The paper concludes that a Ponzi scheme is a source of income for victims, and that winners ought to recognize net gains on account of income and net losses on account of capital. The paper’s discussion of the investigative obligations of taxpayers is grounded in considerations of reassessments beyond the normal reassessment period and liability for penalties in the Ponzi context. The paper concludes that a contextual approach to these two issues is required considering the fraudulent nature and inherent information imbalance of Ponzi schemes.

Keywords: Income Tax; Source of Income; Fraud; Ponzi Scheme

Suggested Citation

Tullo, Sas and Taylor, Jackson, Fortuitous Victims: Some Tax Law Consequences of Ponzi Schemes (August 28, 2013). Available at SSRN: https://ssrn.com/abstract=2381620 or http://dx.doi.org/10.2139/ssrn.2381620

Sas Tullo (Contact Author)

York University, Osgoode Hall Law School ( email )

North York, Ontario
Canada

HOME PAGE: http://IncomeTaxAct.ca

Jackson Taylor

York University - Osgoode Hall Law School

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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