Relief for Victims of Investment Scheme - Deducting Investment Tax Losses Can Help Madoff Fraud Victims Recover Their Financial Losses
The list of investors reportedly defrauded by Bernie Madoff’s Ponzi scheme continues to grow. Victims of the $50 billion scam include banking institutions, various charities and a long list of celebrities including Steven Spielberg, Jeffrey Katzenberg, and screenwriter Eric Roth.
Experts are saying it’s one of the biggest Ponzi schemes in the history of Wall Street. But what many people may not know is that these victims of investment fraud can take advantage of tax benefits that can help them recover their financial losses.
Under IRC section 165(c)(2), victims of this scam may qualify for a little known tax break that until now, not many people have been eligible for. They can claim an “ordinary” (versus a “capital”) loss deduction that can help them recoup their money.
To maximize tax benefits, taxpayers can offset their ordinary income, up to the amount of the fraud loss (in the year of discovery) and carry back their losses to previous years. This helps recuperate any previously paid taxes while minimizing their future tax obligations. For instance, if you’ve lost $100,00 million in this scheme, you can recoup $30 to $40 million of that in taxes. I’ve helped people in this situation before and it’s incredibly rewarding to help fraud victims regain their financial welfare.
While there are clear tax benefits to deducting a fraud loss, it is critical to note that this is an incredibly technical and a complicated process that will certainly put taxpayers under IRS scrutiny.
To recover your losses, you will need to go back and amend your tax returns, which means you will inevitably be audited. My best advice is to have experienced tax professionals help you through the process so you can successfully turn your financial life back around.
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:
- Falling Tax Revenues May Make It Difficult for Madoff Victims to Recover Their Losses
- What Safe Harbor Really Means for Ponzi Victims - IRS Estimates it will Refund Fraud Victims $17 Billion, But Not Without a Fight
- What Everyone on Madoff’s 162-Page Client List Should Know About Recovering Losses through Tax Deductions
- What Fraud Victims Need to Know About Claiming Theft Loss Deductions under Section 165: Be Prepared to be Audited
- Tax and Planning Implications for Madoff Ponzi Scheme Victims
Tags: Bernard Madoff, Bernie Madoff, fraud loss, investment fraud, IRC 165, IRS 165, Jeffrey Katzenbery, loss deduction, Michael Rozbruch, ordinary loss deduction, Ponzi, pyramid scheme, Steven Spielberg, tax expert, tax resolution expert, tax resolution services, tax settlement, Tax Tips
December 20th, 2008 at 8:07 am
Sure would be interested in a clarification. You state an amended return needs to be filed? Why would the credit not be taken on the current year, since it is my understanding the credit should be taken on the year of the discovery of the loss, which is the year of 2008?
Jeff Day EA
Evansville, In
December 23rd, 2008 at 11:43 am
If you do not have enough ordinary income in 2008 to “eat-up” the loss created by the Madoff fraud, you are permitted to use up any excess by going back up to three years (via amending returns) or forward 20 years. There is a special election to make to carry back or carry forward. If the income you have in 2008 is enough to offset all the Madorf losses you incurred there is no need to amend prior years. You can deduct the loss in 2008.
Also, you may have been in a higher tax bracket in the earlier 3 years thereby, via amending, you can take advantage of a larger benefit. You must look at all three years including the current to see which year you may have been in a higher tax bracket than 2008.
February 6th, 2009 at 2:26 pm
[...] investors seeking relief from fraud should know that while there are clear tax benefits to deducting a fraud loss, but they should be [...]
March 8th, 2009 at 1:17 pm
I mean no disrespect but I’m seeing way to many company’s hang up their shingle claiming to be experienced or experts and that’s often times not the case. And as this deduction is far too important to these people, I’d like for you to answer just where you fit in. I know you’re experienced in OIC’s, but what of 165’s?
When did you start filing 165 deductions? How many of these filings have you processed? How many of those have gone through audit? How many have you won on appeal? How many tax cycles have you been through while representing 165 clients? And how many of your clients have received 40% of their losses back????
My name is Moira Souza Shiver and I am a consumer advocate for victims of investment fraud. I would like nothing more than to find another qualified firm that I can recommend but frankly, they’re few and far between. I’d love the opportunity to see your stats and the substantiation of the claims you’re making. I have been working with injured investors for ten years and have witnessed over 1,500 of them successfully file a 165 claim but I’ve never seen anyone receive 40% in benefits. There’s always an exception but in this case, it’s nearly an impossibility and that is misleading.
These people need help but they also need the whole story. You are right when you say this is extremely technical and they can’t afford to hire someone who is still a part of the learning curve. If I’m wrong and you fit the bill, I thank you and would like to speak to you about referring business. But if I’m right, shame on you …
March 9th, 2009 at 10:58 am
Dear Mr. Moira Souza Shiver:
I started representing clients, in connection with IRC Section 165 deductions, before the IRS’s Examination Division, in 2002-2003. The majority of my experience has been overturning the Exam Division’s determination at the Appellate level. As you know, employees in the IRS’s first line of defense (Revenue Agent or Tax Compliance Officer) are instructed to deny these claims outright. We generally wait for the 90 day NOD letter, and file a petition with the United States Tax Court (this way, it becomes a “docketed” (legal) case and the courts have jurisdiction vs. exam/administrative).
It has been my experience, 100% of time, that the case is sent back to Appeals, by Tax Court, to be worked and settled. The courts like to prosecute non-filers and tax evaders, not elderly folks who were gullible and taken advantage of. I have successfully represented about 12-15 of these types of cases, before IRS Appeals, since 2002. Most of these were due to the taxpayer’s being swindled out of their retirement money, with regard to investing in second trust deeds when there was no underlying assets (real property) that these attached (or didn’t attach) to. I also did a few stock loss cases. We also have 4 Madoff (via Ezra Merkin) cases in house that we are working on.
Additionally, anyone can file a 165 deduction and get lucky, have it go through the system and you’re done. My experience has been in defending the deduction once it has been denied, by the IRS, via audit. I am very good at what I do which is negotiating, not bean counting.
The claim of 40% is rounded up from 35%, assuming you were in that tax bracket in 2008 (and the three previous years). However, the way things are going with the new administration, if one elects the 20 year carry forward (instead of the 3 year carry back) the 40% is probably a much more realistic figure, given the income tax increases that are slated for the 35% bracket (to go to 39.6%) and the particular state ones resides in. If someone discovered that they had a valid $1,500,000 theft loss (that qualified for 165 status) in 2008 and they had been in the highest income tax bracket in 2005, 2006, 2007 and 2008, and paid taxes on income of at least $1,500,000 over this period, than they would enjoy between a 35% - 40% recoupment (between the Federal and State of California) of their loss, via refund checks from the IRS and State.
I have very seasoned and well qualified tax attorneys and CPAs with 165 tax filing experience. We are a firm of 50 people headquartered in 11,000 square feet of office space, just north of Downtown Los Angeles. I also maintain a highly effective network of tax and legal professionals, (A Who’s Who in this realm) of the best and brightest on the West Coast, if not the country, that I “team” with on certain specific matters when the circumstances call for it.
I may not be the “right” person you are looking for, however, feel free to call me at (818) 774-1813. Thank you for your time.
Respectfully,
Michael A. Rozbruch
June 29th, 2009 at 9:23 am
[...] of the $50 billion scam include banking institutions, various charities and a long list of celebrities including Steven [...]
August 6th, 2009 at 3:23 pm
[...] blogged about how Ponzi victims can get expert tax help for maximizing their tax benefits to help them regain their financial welfare.