The worst part for the Madoff victims? They had to pay income TAXES on fake earnings

[pnwmom]

In some cases, for ten years worth of earnings they never earned.

I suppose the most recent years fake earnings can be taken care of with amended tax returns. But before that -- a gift to the U.S. treasury.

http://executivesuite.blogs.nytimes.com/2009/03/13/when-smart-people-do-dumb-things/

On the subway ride Thursday morning to the federal courthouse — where I watched Bernard L. Madoff plead guilty and get hauled off to prison — I came across this quote in Vanity Fair’s big Madoff article. It was uttered by a woman named Ronnie Sue Ambrosino, a Madoff victim:

“Everybody knows we’re penniless and can’t pay our mortgage,” she said. “That’s not what people need to hear anymore. They need to hear the next step. Write about how the government let this happen and how the government is letting the victims down. I need people to know that the S.E.C. failed miserably for at least 10 years, if not more, that they were warned, and they didn’t stop the devil from doing his deed. I need people to know that S.I.P.C. has taken more than a month to get a claim form out to help the victims. I need people to know that the I.R.S. has been collecting taxes on phantom income for at least 10 years. I need people to know that Bernard Madoff has given money to senators across the country in their campaign funds. So you tell me how our government is helping support the victims, or are they supporting the victims.”

[marketcrazy1]

1. many will be trying to get refunds

but some will have to PAY BACK money they received. I have heard that the receivership trustees intend to do "claw backs" of fictitious profits.....

[pnwmom]

2. And the refunds can only go back 3 years -- but this scheme has been going

on for 10. All that time, the U.S. treasury has been taking in tax money on phantom profits.

Yes, and now there are the claw backs to contend with. These people are screwed.

[Critters2]

3. What is a "claw back"? nt

[marketcrazy1]

4. a "claw back" is

the term used when regulators or in this case the trustees ( lawyers ) of the madoff fund go back to those who "earned" a profit on their investments and orders them to return those funds,,, EXAMPLE: investor puts 500 thousand into the fund 15 years ago. he "earns" 10 percent each year or 50 thousand per year. he draws out that money to live on. over 15 years he has drawn 750 thousand dollars, 250 thousand MORE than his investment, the trustees will seek to "claw back" that 250 thousand "profit" because it was "fictitious" - it was someone else`s money and should be returned. in this case THAT investor is wiped out as he has already spent his investment PLUS 250 grand that came from some other investor. that is a simple explanation. the reality will be more complicated, but you get the idea........

[Critters2]

7. Wow. That sucks completely. Too bad there's not some way

to take that money out of Madoff's hide.

[MilesColtrane]

5. Bad, but not the worst part.

The worst part would be losing all of their initial investment.

[pnwmom]

6. When you invest, there's always that possibility. But usually you're not paying

taxes on top of that -- for fake earnings.

So what is happening is that they've lost MORE than what they initially invested.