Reply #12: IRS to Issue Guidance to Aid Victims of Madoff, Other Ponzi Scams

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Source: WSJ

WASHINGTON -- IRS Commissioner Doug Shulman said the Internal Revenue Service will issue guidance Tuesday to help investors who lost millions in Bernard Madoff's investment schemes.

The IRS guidance will also help victims of other Ponzi-like schemes, Mr. Shulman told the Senate Finance Committee in a Tuesday hearing.

The guidance aims to resolve some uncertainty surrounding how and when Madoff investors can deduct losses on their tax returns. Those investors may benefit from the ability to claim so-called theft losses.

The IRS guidance makes clear that "investment" theft losses are treated differently than many types of casualty and theft loss deductions. The Ponzi-scheme losses aren't subject to limits that apply to other types of theft losses, Mr. Shulman said. For example, the general rule for losses limits deductions in excess of 10% of a taxpayer's adjusted gross income. That limit doesn't apply to Madoff losses, he said.

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