For SOME victims of Madoff, there's tax relief


Complicating the law and making things worse
I agree that the Madoff thing was a Ponzi scheme of epic proportions, even if it doesn't match the biggest Ponzi scheme in all of recorded history.

But this goes too far.

The Internal Revenue Service issued guidelines Tuesday that will allow tax relief and refunds for some Bernard Madoff victims who were levied for investment earnings that turned out to be nonexistent. IRS Commissioner Douglas Shulman told Congress the new guidelines are for taxpayers who have suffered losses from Ponzi investment schemes such as the massive Madoff swindle.

He said the guidelines will apply to victims of all Ponzi schemes — financial scams in which early investors are paid returns from money put in by later investors. But given the scope of the Madoff scandal, the IRS wanted to establish an easy system for investors to recover taxes they paid on "fictitious income," Shulman said.

Madoff investors should have reported earnings from their investments with him through the years — the scheme stretched from the early 1990s to Madoff's arrest on Dec. 11 — and thus paid taxes on those earnings. Given that some of those were "phantom" profits, investors have said they should be entitled to refunds of the taxes they paid.

Investors in some of these cases are entitled to a "theft-loss" deduction, not subject to the limits on normal capital losses from investments, according to the IRS guidelines, Shulman testified at a Senate Finance Committee hearing.

Okay, three issues here.

First, why are taxpayers liable for investment risk?

Second, why is it "some" taxpayers? Notice how once again the uniform rule of law is undermined, the law should apply equally to everyone or it should apply to no one. Of course the whole idea of a progressive tax system undermines that, but I won't get into that here.

Third and most importantly, why is it illegal if Madoff does it but not the Federal Government?

— NeoWayland

Posted: Wed - March 18, 2009 at 04:14 PM  Tag


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