As the list of Bernard Madoff's victims has more and more names added to it, there may be consolation from the IRS for all of the individual investors that have to absorb big hits resulting from the Ponzi scheme, as the capital gains taxes paid since 2005 are recoverable.
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According to a
Bloomberg story, investors can be refunded the capital gains
taxes paid between 2005 through 2007. Additionally if the IRS can be
convinced that investors are the victims of theft, their losses could
be deducted from their income taxes back to 2006, with unused theft
losses used to reduce tax liabilities for the next 20 years. The theft
argument is especially effective since the losses would be deducted
from ordinary income, not just the individual's future capital gains.
"The Madoff debacle will result in what amounts to another federal
government bailout," Warren Kessler, an attorney at the Los Angeles law
firm Kessler & Kessler, told Bloomberg. "It is likely that the
Treasury will wind up refunding taxes," at least on the loss of money
individuals invested with Madoff, he said.
However in an ironic twist, the many tax-exempt charities and pension
funds swindled by Madoff would be closed off from such a method of
recovery. And those who absorbed losses indirectly through hedge funds
and funds-of-funds, will have a harder time making their case with the
IRS. -
George White
See Bloomberg story
See more Dealscape posts on Madoff
