According to a recent article in the New York Times titled For Victims of Schemes, the I.R.S. Can Be Flexible, a bailout for Madoff victims would cost federal, state and local governments as much as $20 billion.

While a spokesman for the Internal Revenue Service declined to comment on the Madoff case, there is still speculation in the media and amongst tax professionals as to whether investors will be able to successfully seek redress from the federal government for losses stemming from Madoff’s $50 billion Ponzi scheme.

Under Section 165 of the IRS Tax Code, investors who paid taxes on investment gains that turned out to be false can recover some of their money back in the form of tax deductions or possibly even refunds.

In this current economic climate, the IRS may not want to open the door to investors who might claim theft loss deductions and file amended returns. But we need to keep in mind that the law is the law. And Internal Revenue Code Section 165 is pretty clear on investment fraud loss and deductibility rules.

Ultimately the IRS will have to cave in to taxpayers seeking investment fraud recovery, but not at the first level of defense.  This will take place at the Appellate level or in the Courts.

That is exactly why people require expert specialized audit representation when dealing with the IRS, especially because the IRS will reject all of these amended returns for prior years.

For more advice and information on investment fraud recovery, contact our specialized staff of attorneys, CPAs, EAs and tax professionals. You can visit the Tax Resolution Services web site for a free tax relief consultation or call 866-477-7762.

More Tax Help, IRS News and Tax Relief Tips:

1. Relief for Victims of Investment Scheme - Deducting Investment Tax Losses Can Help Madoff Fraud Victims Recover Their Financial Losses
2. Falling Tax Revenues May Make It Difficult for Madoff Victims to Recover Their Losses
3. What Safe Harbor Really Means for Ponzi Victims - IRS Estimates it will Refund Fraud Victims $17 Billion, But Not Without a Fight
4. What Everyone on Madoff’s 162-Page Client List Should Know About Recovering Losses through Tax Deductions
5. Tax and Planning Implications for Madoff Ponzi Scheme Victims

Tags: bail out, Bernie Madoff, CPAs, filing amended tax returns, fraud loss deduction, investment fraud, IRC 165, loss deduction, madoff, Michael Rozbruch, ponzi scheme, tax attorneys, tax expert

This entry was posted on Friday, January 9th, 2009 at 7:15 am and is filed under Tax news and tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.