Henry invests $50,000 in an entity called Forward Investments on January 20, 2015. Under the terms of
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During 2015, Henry receives quarterly statements of earnings on his investment in Forward. As of December 31, 2015, the statements indicate that Henry has earned $9,600. In January 2016, Henry hears a rumor that Forward Investments is not a legitimate investment broker. On January 26, 2016, Henry withdraws his investment, receiving $60,050 (the $50,000 original investment plus $10,050 in earnings). In late February, he learns that Forward Investments is a pyramid scheme through which early investors were paid earnings out of capital contributions by later investors. The U.S. Securities and Exchange Commission files suit against Forward in March 2016.
Henry wants to know the taxability of the amounts he received from Forward. He thinks that he never really earned any income from his investment because he was paid out of later investors' capital contributions. Write Henry a letter explaining the income tax effects of the payments he received from Forward Investments.
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Related Book For
Concepts In Federal Taxation 2017
ISBN: 9781305965119
24th Edition
Authors: Kevin E. Murphy, Mark Higgins
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