I’ve blogged before about the investment fraud loss and deductibility rules outlined in Internal Revenue Code 165, and how the tax code can help victims of investment fraud recoup their losses. Now Madoff victims are hoping to get refunds on past state taxes paid on income from Madoff that they might never have received.

The Los Angeles Times reports that hundreds of Californians, many of them elderly and nearly broke, are pressing legislators for help in getting compensation for some of the money they lost in a Ponzi scheme run by confessed swindler Bernard Madoff.

Madoff pleaded guilty in March to 11 securities-related fraud counts. He is in jail awaiting a June 16 sentencing hearing.

Now, more than 400 of his victims who live in California are seeking passage of a bill that would give them the right to get back tax payments on so-called phantom income — profits that appeared on their annual account statements but didn’t actually exist and were never paid to the investor — from the last five years. The group represents about a tenth of all victims nationwide of the $65-billion fraud.

Such refunds on amended prior tax returns currently are allowed by the U.S. Internal Revenue Service but not by the California Franchise Tax Board, which collects state income taxes.

The state is refusing to make its income tax rules conform with federal law. Some of the Madoff victims who lost millions of dollars in the investment scam feel like this is inherently unfair and that they are being victimized a second time by the state of California.

I handle IRS cases for victims of investment fraud - especially those scammed by Madoff’s Ponzi scheme - who a are looking to recover 30-40% of their losses by filing tax theft loss deductions. Fraud victims qualify for this IRS tax break, but will need to go back and amend their tax returns to recoup their losses. Even though the IRS has released Safe Harbor Guidelines for recouping their fraud losses,  taxpayers will still need a specialized tax expert to help them navigate the tax code and assist them through this process.

**For more advice and information on investment fraud representation, 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. What Safe Harbor Really Means for Ponzi Victims - IRS Estimates it will Refund Fraud Victims $17 Billion, But Not Without a Fight
2. New IRS “Safe Harbor” Guidelines for Ponzi Victims Filing Tax Theft Loss Deductions
3. Tax Code Helps Investment Fraud Victims Recover Financial Losses as Madoff is Sentenced to 150 Years in Prison
4. Tax and Planning Implications for Madoff Ponzi Scheme Victims
5. Orange County Money Manager Accused of Defrauding Investors Out of Millions of Dollars

Tags: Bernard Madoff, Bernie Madoff, california tax refunds, investment fraud victims, los angeles times, Michael Rozbruch, ponzi scheme, safe harbor guidelines, tax expert, tax resolution, tax resolution services, theft loss deductions

This entry was posted on Monday, April 27th, 2009 at 12:30 pm 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.