IRS giving relief to some Madoff investors

[Frank Booth]

Source: AP

The Internal Revenue Service is allowing tax relief and refunds for some investors who paid taxes on earnings from their investments with Bernard Madoff that turned out to be nonexistent, the head of the agency told Congress Tuesday.

IRS Commissioner Douglas Shulman said the agency is issuing guidelines for taxpayers who are victims of losses from Ponzi investment schemes such as the massive Madoff swindle.

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.

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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.

Read more: http://finance.yahoo.com/news/IRS-giving-relief-to-some-apf-14663471.html;_ylt=Ajr_vTlcHhMCX6BBxtPJFge7YWsA

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Madoff investors are also getting paid out by the SIPC.

At least this country's social safety net works for some people -- so long as you already have a lot of money.

[JFKfanforever]

1. Only to "Madoff" investors? What about Enron investors?

How about all thos employees who lost their 401K funds in the
nron scandal?  Does anyone know if these goos people are
getting any IRS relief?  Why should the Madoof crowd get any
special treatment?

[DrDan]

3. they did not pay tax on theier 401K earnings

[Lucky Luciano]

6. I think it is pretty clear...

The ENRN debacle did not produce earnings that got taxed except for dividends possibly - but those dividends did hit the accounts of the shareholders as cash - so tax refunds there cannot really be justified - except possibly the DRIPs or dividend reinvestment plans - there may be an argument to be made there. If, OTOH, you had $10MM invested with Madoff, and Madoff reported to you that you have cap gains of $1MM that continue to sit in his fund, then you would owe taxes on the $1MM cap gains he "earned" for you. Well, depending on the tax rate in effect in time, that cost you several hundred thousand that you should not have had to pay. That makes sense that it be returned since you paid taxes on money you never earned. This is not a refund because someone lost money due to fraud (The IRS Part - the SIPC does give up to $500K for the fraud - quite similar to FDIC) - it is a refund of taxes paid on income that was never earned.

ENRN was, of course, a scandal of the highest order, but it did not lead to taxes on cap gains that should not have been paid unless someone got out of the stock before it imploded - in which case, there is also clearly no justification for getting back any money! The SIPC is only for investment companies and brokers. It does beg teh question, however, that if a company goes public, then perhaps every public company should pay a small annual fee relative to the market cap of the company into a fund just like banks pay to FDIC and investment companies pay to the SIPC that would recover funds for investors (up to a certain amount) who got bilked due to accounting fraud, etc. I am not sure how feasible it would be to implement that, but I would think that it is a good idea - and could add substantial confidence to the system. The only thing I wonder about is that it could possible be abused.

[Tansy_Gold]

15. Most of those who lost Enron 401k funds never had them to begin with

Or at least not most of them.

If they put $10K into the fund as their own contribution and that $10K exploded into $400K because of stock manipulation, and then it deflated to $10, then the contributor only lost $9,990, NOT 399,990. And since the first rule of "investing" is never to invest money you can't afford to lose, and if there were no guarantees by an outside party of the value of the Enron 401K, then it's just too bad.



TG

[mainegreen]

2. Madoff really created a world class clusterfuck, didn't he?

Holy crap. We all get burned.

PS
I approve of your avatar!

[theoldman]

4. To the best of my knowledge, if you own a stock and it drops

to zero you can write it off on your income tax. The problem is that you cannot reduce your tax by $10,000 if you only owe $1000.

[Frank Booth]

11. True, but you still get taxed on dividends, even if you reinvest them.

I don't see why this situation is any different.

The SIPC exists to deal with these types of problems. This IRS decision is a $17 billion giveaway to the wealthy.

[Pharlo]

5. I don't understand why these people should get any tax relief...

How is The Madoff Fiasco any different than any other stock investment gamble. If we start down the slippery slope of giving welfare to the wealthy investors who lose money playing the stock market, where does it end?

I mean, Heavens, the next thing you know, we'll be giving tax payer welfare to bankers!!!

These people need to learn to pull themselves up by the bootstraps and stop sucking off the teats of the law abiding taxpayer!!!

What we need to do, to fix this crisis, is give the Wal-Mart industry more tax incentives to give these people jobs so they can WORK! If every bank executive were to get three or four jobs as a Wal Mart greeter, they could pay back the US government for their welfare handouts in a couple of millennia.

THE SLACKERS!!!

[Akoto]

7. I believe they paid taxes on money that never existed. n/t

[Lucky Luciano]

8. So, if you gave me $1MM of money to invest

in a fund of my creating and I say that I earned $200K in capital gains for you and you paid taxes of 15% (the current cap gain rate), then you would have paid taxes of $30K. Now let us say that my company was BS and really a Ponzi Scheme and that you never really earned the $200K and it was all a fraud. Then your $1MM is gone (possibly your life savings), but you still paid taxes on the $200K you never earned. You think it is ok for the IRS to keep the $30K in taxes on income that was never earned? :eyes:

[Frank Booth]

10. Yes. It's not unusual.

If you have a savings account you get taxed on the interest earned. If you have more in the account than what's FDIC insured and the bank goes under, you only get up to what's FDIC insured. You don't get paid back for the taxes you paid on interest.

If you own a stock that pays dividends, you pay tax on those dividends. Many people choose to reinvest dividends. If the stock drops to zero, you don't get paid back the tax you paid on those now worthless dividends.

As for the Madoff investors, there actually was money in the pot, just no money earned from investments. For example, if you decided to take your money out last summer, you would have received all your initial investment, plus the purported 10-12% yearly earnings.

The IRS changed the rules here because average folks get screwed all the time in similar situations, and the IRS just couldn't let the same thing happen to good rich folks.

[Lucky Luciano]

9. dupe

[bemildred]

12. IRS to Issue Guidance to Aid Victims of Madoff, Other Ponzi Scams

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.

Read more: http://online.wsj.com/article/SB123730195606956645.html?mod=googlenews_wsj

[county worker]

13. Can I deduct the lost value of my house?

We are all victims to some extent.

[Robbien]

14. Bailouts for the rich again.

When average people are scammed the IRS just laughs. Lucky for Madoff victims that most of them are very wealthy influential people.

[mr_smith007]

16. The rich are victims and the poor are

stupid losers...that seems to be how works these days. A poor person gets a foreclosure notice and they are considered a stupide loser because they didn't know any better that they were being scammed by an immoral originator and a massive Wall Street MBS scheme. A rich person gets scammed and oh goodness, he/she must be a victim, no stupidity or lack of research on their part.

[louis-t]

17. Funny how investors get a break, but homeowners

whose value plummets and then sell on a short sale are required by the IRS to pay tax on the difference between their payoff and what their mortgage balance was. Taxed as 'income' or capital gains.