Madoff victims find help in new IRS rules

March 17, 2009

(ChattahBox) — The IRS has announced it will allow the victims of the Bernie Madoff debacle to claim tax relief and refunds for payments they were obligated to make on profits that never existed.

IRS Commissioner, Douglas Shulman, told Congress that his agency is in the process of publishing a series of guidelines for people who were ensnared by the Madoff scam and similar Ponzi-style fraud. “Some taxpayers have argued they should be permitted to amend tax returns for years prior to the discovery of the theft, to exclude the phantom income and receive a refund,” Shulman told a meeting of the Senate Finance Committee today. Current IRS guidelines do not include such provisions, so new rules will be added to help Madoff’s victims recover, Shulman explained.

In some investment scenarios, clients are entitled to a “theft loss” deduction that is not required to adhere to the usual limits on losses from investments, according to the IRS guidelines. Such a deduction can be taken in the same tax-year as the fraud is discovered, unless the victim has some reasonable hopes of ever seeing their investment again.

In the Madoff case, any such hope is very unlikely, so most victims should be able to partake  in the deduction. Of the $65-billion reported as assets by the scheme last November, less than $1-billion has so far been traced, and refunds to a list of the victims that is currently topping 4,000 people could cost the IRS – and thus you and I, the American taxpayer – around $17-billion in refunds and redress. Senator Charles Schumer, [D-NY.], a member of the Committee to whom Mr. Shulman was speaking, is a long-term supporter of relief for such victims, and said that the IRS “has done the right thing.” in drafting these rules.

As the protracted catastrophe caused by his greed and malfeasance unspools all around him, Madoff, 70, the former chairman of America’s financial jewel, the NASDAQ exchange, is awaiting his sentence at the Metropolitan Correctional Center in lower Manhattan. With the final judgment expected in June, he faces as much as 150-years behind bars for his crimes.


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