IRS begins mailing refunds to Madoff victims

The Internal Revenue Service (IRS) has begun sending refund checks to Madoff investors who paid taxes on investment income from the giant Ponzi scheme. Robert S. Keebler, a partner at accounting firm Baker Tilly Virchow Krause LLP in Appleton, Wisconsin, says that while some clients who were Madoff investors have received refunds, most are still in process.  “The leadership at the national office of the IRS has done an excellent job of bringing guidance to practitioners and their own colleagues, but as in any large organization, the transition to the field offices takes time.”

 
Keebler says that there are still families affected by Madoff’s scheme who need to make decisions about how they want to proceed, and they need to do so soon, with the October 15th deadline for filing individual returns rapidly approaching.
 
The IRS issued guidance in March that clarified tax law and rules for the claiming the theft loss deduction for investors in all Ponzi schemes.  The guidance included a “safe harbor” provision which allows a U.S. investor in a Ponzi scheme to claim a theft loss deduction of 95 percent of their net investment losses in the year the theft is discovered, including any fictitious income included on prior-year tax returns. Any unused losses may be carried back three years or in some cases, five years. 
 
The number one priority for practitioners is to make sure that their protective claims are in place,” Keebler says, so that the IRS cannot say that the statute of limitations applies. “They also need to focus on the carryback provisions.”
 
Keebler and Michael Gershon will discuss the practical issues and the ‘how to’ of reflecting the actual investment losses from Ponzi schemes on the returns of pass-through entities and individuals in a CCH Audio Seminar on Tuesday, August 18. 

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