House Bill Would Provide Tax Relief to Defrauded Madoff Investors

Rep. Gary Ackerman a senior member of the House Financial Services Committee, has introduced legislation that would allow victims of Bernie Madoff’s Ponzi scheme to receive refunds for the taxes they paid on phantom profits; revenue they thought they earned which in reality never existed due to the fraud. The bill, HR 1389, would also allow victims who recoup the taxes they paid on bogus profits to receive the funds as a tax credit if they prefer this method over a tax refund.

The legislation would extend to thirteen years the amount of time investors victimized by the Madoff securities fraud can obtain refunds for the taxes they paid on the phony income. Under the legislation, entitled the Fraudulent Tax Relief Act, victims would be permitted to claim a refund for all taxes paid on their Madoff “profits” dating back to 1995. Presently, Madoff investors, like all taxpayers, can only amend tax filings for the past three years.

The measure was introduced in the wake of last month’s announcement that no evidence exists to indicate that securities were ever purchased for Madoff’s customer accounts for the last thirteen years. This announcement came on February 20 from Irving Picard, the court-appointed Trustee for the SIPA liquidation of Madoff’s investment company.

In addition to introducing the legislation, Rep. Ackerman sent a letter to Internal Revenue Service Commissioner Douglas Shulman urging him to allow those defrauded by Madoff to claim theft loss 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.