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IRS To Allow Tax Relief for Madoff Victims

By Jeralyn, Section Crime in the News
Posted on Tue Mar 17, 2009 at 11:24:37 AM EST
Tags: Bernard Madoff (all tags)
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The I.R.S. announced today that victims of Bernie Madoff's ponzi scheme will be entitled to tax refunds if they paid taxes on phantom profits.

Madoff investors should have been reporting earnings from their investments with him through the years and thus paid taxes on those earnings. Given that some of those were "phantom" profits, investors have said they should be entitled to refunds of the taxes they paid.

....By some estimates, the IRS could be out as much as $17 billion in lost tax revenue from refunds to investors who earned fictitious profits in the Madoff scheme.

IRS Commmission Douglas Shulman told Congress today the IRS will be issuing guidelines to Madoff's bilked investors: [More...]

Under the plan, which has been reviewed by the congressional offices, the I.R.S. will allow investors who are not suing Mr. Madoff to claim a theft-loss deduction equal to 95 percent of their investments, minus any withdrawals, reinvested gains and payouts from Securities Investor Protection Corporation, the government-chartered fund set up to help protect investors of failed brokerage firms.

Investors who are suing Mr. Madoff, and who thus may have some prospect of recovery, can claim a deduction equal to 75 percent of their investments.

In other Madoff news, it looks like creditors seeking Ruth Madoff's $9 million Palm Beach home may be out of luck. She filed for and obtained a homestead exemption on it. Remember when O.J. moved to Florida and why?

"The Florida Constitution provides that a civil creditor cannot force the sale of a person's homestead to collect a civil judgment," Jonathan Alper, an Orlando attorney who edits a Florida blog, told the Post. "There is no dollar limitation so that homestead properties are exempt from forced sale by creditors regardless of how much money the debtor invests in his homestead."

But one news report says the house would have to be her primary residence and could not have been obtained with illegal proceeds from Bernie's scam.

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    IRS To Allow Tax Relief for Madoff Victims | 13 comments (13 topical)

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    I don't have a problem (5.00 / 1) (#1)
    by Bemused on Tue Mar 17, 2009 at 11:32:16 AM EST
      with the allowances decribed , but does this apply only to Madoff investors or to anyone who has paid taxes on phantom profits as a result of being defrauded?

      I'm also not sure that providing an incentive for people not to sue Madoff (20%) is a good idea. Why not have the same allowance and then provide for the IRS to recoup taxes if any of the litigants make a recovery?

    Investors in some of these cases are entitled to a (none / 0) (#3)
    by sarcastic unnamed one on Tue Mar 17, 2009 at 11:49:52 AM EST
    Investors in some of these cases are entitled to a "theft loss" deduction, not subject to the limits on normal capital losses from investments, according to the IRS guidelines, Shulman testified at a Senate Finance Committee hearing.

    The theft loss deduction can be taken in the year a fraud is discovered, except to the extent an investor has a reasonable prospect of recovery of the lost money, Shulman said.



    Parent
    How about the victims... (none / 0) (#2)
    by kdog on Tue Mar 17, 2009 at 11:41:18 AM EST
    of fraud at the hands of the US govt...do we get similar tax relief?  At the least we should be allowed to deduct our share of the various corporate handouts, as well as our share of the Iraq fraud....sh*t our share of the drug war fraud too.  Help me out..what other frauds am I forgetting?

    Are there likely to be victims who aren't suing? (none / 0) (#4)%