Marcey Gordon of the Associated Press has a good summary of the Madoff tax relief provisions at IRS Giving Relief to Some Madoff Investors:
IRS Commissioner Douglas Shulman told Congress the new guidelines are for taxpayers who have suffered losses from Ponzi investment schemes such as the massive Madoff swindle.
He said the guidelines will apply to victims of all Ponzi schemes — financial scams in which early investors are paid returns from money put in by later investors. But given the scope of the Madoff scandal, the IRS wanted to establish an easy system for investors to recover taxes they paid on “fictitious income,” Shulman said.
Madoff investors should have reported earnings from their investments with him through the years — the scheme stretched from the early 1990s to Madoff’s arrest on Dec. 11 — 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.
Investors in some of these cases are entitled to a “theft-loss” deduction, not subject to the limits on normal capital lossesfrom 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 recovering the lost money, Shulman said. Investors will be able to deduct 95 percent of their losses immediately. If they are unable to recover the remaining 5 percent, they can claim those deductions in subsequent years.
See also:
Joe Kristan, Tax Updates
Paul Caron, TaxProf Blog
2 responses so far ↓
1 David Shulman // Mar 17, 2009 at 10:53 pm
I wrote about it also at my blog. Better late than never from the IRS. I wonder how many Madoff victims already filed their returns for 2008.
2 Zsa Zsa: Madoff is not a “Dahlink” // Nov 16, 2009 at 1:23 pm
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