Congressman Asks IRS for Tax Relief of Madoff Victims

Rep. Gary Ackerman, D-N.Y., has written to Internal Revenue Service Commissioner Douglas Shulman asking him to provide tax relief to investors who were swindled by Bernard Madoff’s $50 billion Ponzi scheme.

Ackerman (pictured), a senior member of the House Financial Services Committee, called on Shulman to allow victims to claim theft losses on their 2008 taxes, and amend their tax returns dating back to at least 1995.

By claiming a theft loss, investors would be eligible for a tax credit for money that Madoff stole from them. Amending tax returns back to 1995 would extend the number of years for which victims could obtain refunds for taxes paid on phantom profits. Presently, Madoff investors, like all taxpayers, can only amend tax filings for the past three years.

Ackerman sent the letter in the wake of last week’s announcement that no evidence exists to indicate that securities were ever purchased, according to Irving Picard, the court-appointed trustee for the liquidation of Madoff’s investment management firm.

“Given this confirmation that Madoff Securities made no investments with its clients’ money, I believe it would be appropriate for the Internal Revenue Service to immediately issue guidance and allow Madoff’s victims to both claim theft loss on their 2008 tax returns and amend their tax returns dating back to at least 1995,” Ackerman wrote.

“The immediate issuance of guidance will permit victims of Mr. Madoff’s fraud enough time to complete their 2008 tax returns," he added. "Additionally, while Internal Revenue Service guidelines currently only permit a three-year carryback under the theft-loss provision, I believe that the magnitude, both financially and in human tragedy, of Mr. Madoff’s fraud constitutes an extraordinary circumstance that would permit a full carryback to the beginning of this scam.”

Earlier this month, Ackerman blasted officials from the Securities and Exchange Commission as they testified before his subcommittee. He criticized the officials for failing to catch Madoff as he defrauded investors. The congressman also has dozens of constituents in his Queens/Long Island district who have been victims of Madoff’s scheme.

Approximately two-thirds of the CPAs who attended a breakfast seminar this week given by the New York State Society of CPAs also indicated that they had clients who have been harmed by the scheme (see CPAs Ponder Madoff Strategies).