Kathryn Zdan, EA
Editorial Director

Get this man some aloe vera!

Like an ant under a magnifying glass, a California solar company got burned for engaging in a $1 billion Ponzi scheme that fooled investors like Berkshire Hathaway and Sherwin-Williams.¹

DC Solar was started around 2008 by a former auto mechanic and his wife, the Carpoffs. The company built mobile solar generators, which investors purchased at a reduced cost. DC Solar would then lease the generators to end-users to pay down the remainder, and any profit would go to the investors. Except it didn't.

Instead, the generators weren't leased, investors were paid from money coming in from new investors, and the Carpoffs acquired a baseball team, the ubiquitous stable of classic cars, and threw a holiday party headlined by Pitbull.

A former employee tipped off federal authorities that DC Solar was lying about the number of leased units it had. The feds have since hauled away the Bentleys and Challengers and Mustang Super Snakes, but questions remain about how a small solar start-up blinded some of the biggest investors as they sank millions of dollars into a scam.

A ray of sunshine

Although the TCJA provides that personal casualty and theft losses are not deductible for the 2018–2025 tax years, Ponzi-type theft losses are still deductible if they are incurred in a trade or business or any transaction entered into for profit though not connected to a trade or business.²

Victims of such schemes can take a theft loss, not subject to the usual $100 per occurrence and 10% of AGI limitations. Instead, the losses are treated as miscellaneous itemized deductions not subject to the 2% of AGI threshold.³

Diane Fuller
Contributing Editor

Unless it pertains to a refund, for most taxpayers, opening a letter from the IRS or a state taxing agency can be worrisome. Imagine being a thrift store worker making $10 per hour and receiving a tax bill from Colorado's Department of Revenue for $216,399,508. This happened to Donna Smith from Aurora, Colorado, who received the bill for the 2018 tax year.¹ The multimillion dollar amount is about one-quarter of the city of Aurora's entire annual budget.

Smith's mother prepared her tax return using TurboTax and rechecked it to ensure the mistake wasn't on her end. As it turns out, TurboTax's software experienced a glitch between June 13–16 of 2019, causing certain fields on tax returns to be inaccurately transmitted when e-filed.

Colorado's Department of Revenue determined that 44 taxpayers were affected, although not everyone received such a staggering tax bill. From the department's end, they just see it as data in, data out; they'll process what they receive. Smith and the other affected taxpayers were directed by the department to resubmit a copy of their original return or to file an amended return if they didn't keep a copy.

Bottom line from Colorado's DOR: Never ignore the problem; it won't go away on its own.