Tax Alert: Madoff Investors Have Opportunity to File Tax Refund Claims
12/22/2008
If you were an investor with Bernard Madoff or Bernard L. Madoff Investment Securities LLC ("Madoff") you may have an opportunity to file a refund claim with the Internal Revenue Service as well as state taxing authorities in two ways.
Amending Income Tax Returns
One possibility is to file amended income tax returns for any years where the statute of limitations has not expired. Generally that is the past three years. For most individual taxpayers that would mean amending your 2005 through 2007 income tax returns to remove any fabricated income in excess of distributions you may have received from "Madoff."
Deductible Theft Losses
In addition to, or in lieu of the above, a deduction for a theft loss may be available to you on your 2008 income tax return. The loss is equal to your basis in the investment with "Madoff" less any potential recoupment from the Securities Investor Protection Corporation (SIPC), class action law suits or any other litigation you might be involved in. If the deduction, subject to certain limitations, exceeds your total 2008 income you may have a net operating loss(NOL) that can be carried back three years, offsetting taxable income reported for the years 2005-2007 producing tax refunds for those prior years.
There are a number of issues that may affect the timing of your theft loss. The tax treatment and timing of your loss is complex and will depend on a number of issues that have not yet been resolved.
We will continue to keep you informed on these matters as they evolve.
We would like to point out that your personal insurance policies may cover some of your loss. Please check your homeowner, umbrella policies, etc. to see if you have any potential claim.
In the meantime please feel free to contact your J.H. Cohn professional at 877-704-3500 to help guide you in this matter.
Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing or recommending to another party any tax related matters.